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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Rosan Heims Plc v. Duke & Ors [2002] UKEAT 1248_01_1012 (10 December 2002) URL: http://www.bailii.org/uk/cases/UKEAT/2002/1248_01_1012.html Cite as: [2002] UKEAT 1248_01_1012, [2002] UKEAT 1248_1_1012

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APPEARANCES

 

For the Appellant	MR R HAWKER (Consultant)
For the First Respondent For the Second Respondent For the Fourth Respondent	MRS S PONTAC (of Counsel) Instructed by: Messrs Levens Solicitors Ashley House 235-239 High Road Wood Green London N22 8HF MR M JONES (Solicitor) Instructed by: Messrs Underwoods Solicitors 83-85 Marlowes Hemel Hempstead Herts HP1 1LF MR A CHOUDHURY (of Counsel) The Treasury Solicitor Queen Anne's Chambers 28 Broadway London SW1H 9JS


 


THE HONOURABLE MR JUSTICE ELIAS

1. The Appellant in this case was found by the Industrial Tribunal at London (South) to have been the transferee in a business transfer which the Tribunal held had been made pursuant to the Transfer of Undertaking (Protection of Employment) Regulations 1981. As a consequence, it potentially faces a number of legal liabilities. It now seeks to appeal against that particular determination.

The Background

2. The first three Respondents in this appeal were employed by companies in the Jefferies and Pennicott Group (J&P Group). This supplied bailiff services to local authorities and certain commercial landlords.
3. Bailiffs can distrain – that is, seize goods, in connection with the wide variety of debts including rates, child maintenance, unpaid fines, unpaid rent and judgment debts. There are different statutory regimes regulating the different forms of debt and the rules applicable to the bailiffs, in respect of each particular debt, to some extent vary depending upon the statutory regime in place.
4. Two of the companies in the J&P Group, Jefferies & Pennicott Ltd (JPL) and Jefferies & Pennicott (Eastern) Ltd (JP Eastern), which was a subsidiary of JPL, together employed a total of 30 bailiffs and, in addition, administrative staff.
5. The J& P Group fell into financial difficulties and in February 2000 administrators were appointed. On 22 February they agreed heads of terms in respect of the sale of the business of JP Eastern and JPL to the Appellant. There were claims for redundancy payment and unfair dismissal against the Appellant on the grounds that there had been a transfer of the bailiff business within the meaning of TUPE from JPL and JP Eastern taken together to the Appellant.
6. The first Respondent was an administrator with JP Eastern and the second Respondent a bailiff with JPL. He in fact claimed not only unfair dismissal and redundancy but also an entitlement to bonus, commission and holiday pay. The third Respondent had in fact, by the time of the hearing before the Industrial Tribunal, reached terms of settlement with the Appellant and has played no part in this appeal. The fourth Respondent is the Secretary of State. His interest in the matter is that if there is found to be no transfer then because of the insolvency of JP Eastern and JPL he becomes potentially liable for certain of the employees claims.
7. All the three Respondents who continue to have an interest in the case were represented before us and we are grateful for the assistance of all the parties.

The Tribunal's Findings

8. We need to deal with the Tribunal's findings a little more fully. After setting out the background discussions between the parties the Tribunal made certain findings of fact. It noted that the Appellants had employed 12 of the 18 bailiffs and 10 of the 16 administrative staff employed by JP Eastern and also employed 3 of the accounting staff of JPL and 2 of its 12 bailiffs.
9. The Tribunal then dealt with the question of the extent to which the bailiffs held certificates when they were employed by the transferors. This was a matter which we are told by Mr Hawker, who has acted for the Appellant, was raised for the first time at the Tribunal hearing itself. It was pursued in evidence given before the Tribunal and it appears to have been largely on the basis of this evidence that the Tribunal made relevant findings of fact in respect of this matter.
10. The significance of the evidence is this. The Appellant contends, given that the Tribunal found, as we shall shortly recount, that some of the work done by the bailiffs was done without a certificate and unlawfully, that in the circumstances the Tribunal should have had no regard to the work which they were carrying out or to their contracts of employment when considering whether or not there was an economic entity in the hands of the transferor.
11. The Tribunal dealt with this question of the bailiffs' certificates and the potential implications of this at paragraph 5.13 of its decision in the following way:

5.13 "In order lawfully to undertake the full range of bailiff activities a bailiff has to have a bailiff's certificate issued by the County Court. Possession of the bailiff's certificate would normally be expected to be a condition of all bailiff contracts although in practice J&P Group's clients did not monitor this. It takes some 3 months to complete the procedure for certification, provision of a £10,000 bond and references and requires renewal at two year intervals. In the event it transpired that of the J&P Group bailiffs employed by RH Plc only one had a current valid certificate. Some had had certification which had lapsed but most had never had certificates. Also RH Plc discovered they all had inadequate knowledge of the relevant law and required substantial further training. Eight of the 12 bailiffs taken on by RH Plc at the Bedford office left within 3 months. Of the 2 bailiffs taken on by RH Plc from the Wimbledon office one left on the day he started employment with RH Plc. The other left after a week. Certain levies if undertaken by uncertified bailiffs are illegal and the person illegally levied can sue for damages. To the extent (which was substantiated) that the J&P Group was employing uncertified bailiffs to undertake work which required a certificate, it as a corporate entity acting unlawfully. It is difficult to find people interested in the bailiff business which is work which is not to many people's taste. Advertising for such people is expensive, time-consuming and not always successful."

12. The Tribunal then identified the fact that certain work in progress had been transferred and that the Appellants had been provided with a list of local authorities but not commercial clients. No contracts were assigned.
13. After directing itself in accordance with the relevant law and referring specifically to the decisions in Cheeseman & Others v R Brewer Contracts Ltd [2001] IRLR 144 and Oy Liikenne AB v Liskojärvi and Juntunen [2001] IRLR 171, the Tribunal concluded both that there was an economic entity in the hands of the transferor, and that this economic entity had been transferred to the Appellant. It is not disputed this was a conclusion which the Tribunal could properly reach, if it were indeed entitled to take account of the contracts that were, to use the colloquial phrase, 'tainted with illegality'.
14. The only ground of appeal here is that since the contracts were so tainted then they should not have been taken into consideration when the Tribunal had to determine whether or not there was an economic entity in the hands of the transferor.
15. The Tribunal dealt with the issue of the illegal contracts again when it determined that the businesses operated by JPL and JP Eastern did constitute an undertaking. At paragraph 9.2.3 of its decision it said this:

9.2.3 "Mr Hawker for RH Plc invited us in his submissions to conclude that there was no economic entity because J&P Group had been operating illegally as only one of its bailiffs was certified, and that as management of the J&P Group was in the hands of the Administrators the workforce remaining no longer had the same identity. We did not consider either of these arguments to be compelling. We have found as fact, and it was clearly indisputable that the bailiff business undertaken by JP Eastern and JPL was operated continuously both before and after the appointment of the Administrators, and regardless of the fact that its bailiffs were not certified its clients did not either know, or if they did know did not object."

16. They also had regard to this factor again in the context of determining whether that entity which they had identified had indeed been transferred. At paragraph 11 (iii) of the decision they say this:

11 (iii) "As we have mentioned above we have sought to consider all the facts characterising the transaction including the modest number of clients acquired by RH Plc and the lack of certification of the bailiffs. In relation to the lack of certification we bore in mind our finding of fact of the difficulty in finding people interested in bailiff work and therefore the importance of a grouping of people with bailiff experience willing to do bailiff work. We also had regard to the fact that a number of the bailiff taken on by RH Plc left after a short interval."

17. So the question is – was the Tribunal entitled to take into account the fact that contracts were, to some extent, tainted with illegality? The Appellant submits that they were not and that it is against public policy for them to have done so. The assumption behind this contention appears to be that the contracts of employment of the uncertificated bailiffs were void and unenforceable either by them or by the company. The Respondents all contended that the Tribunal was justified in approaching the matter as it did.
18. They made a number of submissions between the three representatives but we think they can be fairly analysed under two headings. The first was that as a matter of fact the evidence demonstrated merely that on some occasions some contracts were performed in an illegal manner in that it appears that uncertificated bailiffs did work which they were not entitled to do. This, submit the Respondents, does not render the contracts void. It does not establish that the business itself was being conducted for an illegal purpose, and plainly it was not since the work of bailiffs is a perfectly lawful activity. Nor did it establish that the contracts of employment were otherwise illegal.
19. We were referred to the case of Coral Leisure Group v Barnett [1981] IRLR 204, to which we will return, to the effect that the mere fact that an employee may perform some duties unlawfully does not prevent him enforcing other rights under the contract of employment.
20. In addition it was pointed out that there is no evidence as to which employees had acted unlawfully, or how many, or to what extent, and nor was there evidence which demonstrated that they had contractually undertaken to do anything if it was unlawful. Moreover, it was not clear that they would necessarily have known that they were acting unlawfully, even when they were doing so.
21. The second and quite distinct argument addressed by the Respondents was this. They submitted that even if there were contracts which some employees could not enforce for one reason or another, and which could be said to be void under English law, they ought nevertheless to be taken into account at the stage when the Tribunal is determining whether or not there is a transfer. It is only at the point where an employee seeks to enforce rights in respect of that contract that the court ought to be concerned with the question of illegality.
22. The Respondents advanced a number of arguments in support of this particular contention. We identify four in particular. First, it was submitted that it would not be consistent with the proper construction of TUPE, or indeed the Directive underlying it, for these contracts to be ignored when determining whether or not an undertaking existed prior to the transfer.
23. Regulation 3 of TUPE provides:

3 (1) "…these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom"

By Regulation 2 (1) an

2 (1) ""undertaking" includes any trade or business…"

24. It is accepted that the undertaking ought itself to be a legal one in the sense that if the undertaking itself is for an unlawful purpose as such, for example involved in money laundering or improper drug dealing or something of that nature, then the terms of the Regulation would not be applicable. In other words, undertaking within the terms of Regulation 3 means a lawful undertaking. But it was submitted that nothing in Regulation 3, nor in the Acquired Rights Directive which the Regulations are designed to give effect, requires that all the activities of the undertaking being transferred must be entirely lawful.
25. Second, it was submitted that it would be consistent with the need for Tribunals to determine whether or not there is a transfer purely by looking at all the relevant factual circumstances, that they should have regard to all employment relationships which existed between the transferor and his workers, irrespective of whether or not they were regulated by an enforceable contract in law.
26. Third, it was said that bearing in mind the purposes of TUPE, which broadly are to protect the interests of employees who are caught up when the businesses in which they are working are transferred over their heads, it could be detrimental and unjust to employees who had acted perfectly properly, that their rights should be adversely affected by the fact that some other employees may have acted in unlawful ways which deprived those employees who acted properly of their rights. This, it was submitted, would not be consistent with either TUPE or the Acquired Rights Directive; indeed, it would be inconsistent with the objective of those particular sets of rules.
27. Finally, it was also urged upon us that it would simply not be practicable for a court to have to determine, in situations where a transfer was in issue, whether contracts had been performed lawfully and, if not, the extent of that illegality. This would be necessary, it was said, in order for the Tribunal to be able to reach a conclusion as to whether these were contracts that could properly be taken into consideration or not, if the Appellant's contentions were correct.

Our Conclusions

28. In our view both the arguments advanced by the Respondents are correct. It seems to us that if the Appellant's contention was ever to have any prospect of succeeding it would have to be on the assumption that the contracts of employment of some of the staff were void, and that the court should not have regard to these void contracts in determining whether an economic entity existed in the hands of the transferor. In other words, the argument would have to be that since the parties to the contract could not enforce the terms, then it would be wrong for these contracts to be taken into consideration by courts when looking at the separate but related question of whether there is a transfer of an undertaking.
29. In this case the findings of the Tribunal do not support a conclusion that any of these contracts of employment were void. As we have said, the Tribunal did not even have before it information as to the extent to which it was necessary for a bailiff to have a certificate in order to exercise the range of work which was being carried out for the transferors.
30. It appears that the only matter to which reference was made at the Employment Tribunal itself was that there would need to be a certificate before distraining to recover rent arrears (see the Distress Amendment Act 1888).
31. We were shown today two other sets of regulations which indicate that a certificate is also required now for the purposes of enforcing road traffic debts (see the Enforcement of Road Traffic Debts (Certificated Bailiffs) Regulations 1993) and since 1 October 1998 for Council Tax (see the Council Tax (Administration & Enforcement) (Amendment) Regulations 1998).
32. But even if we can properly have regard to these matters (and no objection was made to our seeing them) we still have no knowledge of whether certificates are needed for other activities, nor indeed the range of bailiff work being carried out prior to the transfer. It may be that some bailiffs acted lawfully at all times and that only a few did not – we simply do not know. Nor, as we have said, have we any copies of the contracts which the bailiffs made with the transferors.
33. Accordingly we are satisfied that it is not possible to say that any individual necessarily undertook as part of his contract to work illegally; any illegality would be carried out in the course of performing the contract. This, however, would not render the contract void or prevent the employee from enforcing it.
34. So much is clear from the decision to which we have already made reference, Coral Leisure Group Ltd v Barnett [1981] IRLR 204. In that case Mr Barnett was employed as a Public Relations Executive and in the course of carrying out his functions he claimed that he obtained prostitutes for the Appellant's clients. The question was, whether in those circumstances he was able to take proceedings for unfair dismissal.
35. The Appellant submitted that since on his own admission this was an illegal contract he should not be entitled to do so. The Employment Appeal Tribunal, however, upholding the decision of the Industrial Tribunal, though for different reasons, held that the nature and extent of this illegality did not deprive him of the right to bring his claim for unfair dismissal.
36. We shall refer briefly to a few passages of a judgment of this Tribunal, Browne-Wilkinson J presiding. At paragraph 8 the judge said this:

8 "The basic law applicable is not really in doubt. In general, courts will not enforce illegal contracts entered into for purposes which are either forbidden by the law or (although not forbidden by the general law) immoral. In this branch of the law the word 'immoral' connotes only sexual immorality. We will use the words 'illegal contracts' to include not only contracts to do a criminal act but also contracts to achieve an immoral purpose. In the present case there is no real dispute that if the contracts of employment had been entered into for the sole purpose of procuring and paying prostitutes, that would have been a contract to achieve an immoral purpose, which would accordingly have been illegal and unenforceable. It would follow that since the contract of employment was itself illegal and unenforceable Mr Barnett could not claim for unfair dismissal…"

37. Then, at paragraph 13 the judge continued:

13 "Mr Carr, for Coral, submitted to us that since there was some taint of immoral purpose attached to Mr Barnett's contract the conclusion must necessary follow that Mr Barnett's application must be struck out. This case is not the straightforward one of a contract involving one obligation to be formed on each side; in such a case, if the sole obligation to be carried out by a party is illegal plainly the whole contract is unenforceable. In this case, on Mr Barnett's pleading, he was employed as a member of a 'promotion team' which had a large number of different functions, only one of which is attacked as being unlawful. Moreover, Mr Barnett's contract did not impose a contractual obligation to procure prostitutes, nor (on his pleadings) was he aware that this was even part of his functions until after his employment had commenced. The illegality therefore is not to be found either in the terms of the contract of employment itself or in the purpose of Mr Barnett in entering into the contract; the only tinge of illegality in this case is connected with mode of performance."

38. And then at paragraph 16-17:

16 "The question to be answered is whether any taint of illegality affecting part of a contract necessarily renders the whole contract unenforceable by a party who knew of the illegality. In our judgment a distinction has to be drawn between:

(a) cases in which there is a contractual obligation to do an act which is unlawful, and

(b) cases where the contractual obligations are capable of being performed lawfully and were initially intended to so be performed, but which have in fact been performed by unlawful means.

As to category (a), the answer to the question depends on what is often called the rules of severance, i.e. how far is it possible to separate the tainted contractual obligations from the untainted? As to category (b), the question is whether the doing of an unlawful act by a party to the contract precludes his further enforcement of that contract.

17 We are concerned only with category (b). Dealing with the matter (as we must) purely on the basis of the pleaded case, Mr Barnett knew nothing of the prostitutes until after he had entered the employment. It never became a term of his contract that he should employ prostitutes: it was a method whereby he carried out his general duty of preserving Coral's goodwill. As to category (b) above, we believe the law is correctly set out in Treitel on Contract, 5^th edn, p.362 which says:

'Where the illegality lies in the method of performance, a party is not "guilty" for the present purpose merely because he performs in an unlawful manner'…"

39. In our view, the evidence before the Tribunal does no more than show that the contracts which were tainted with illegality fell into this latter category; that is, one where the illegality was in the course of performance. The evidence did not support the view that these were contracts to do unlawful acts as such.
40. On the basis of the material before the Tribunal, it seems to us that they were contracts which were enforceable at the behest of the employees and were not void. It follows, in our view, that if the employees could enforce rights under those contracts there is no reason why they should not be taken into consideration in determining whether or not there was a transfer. Accordingly, there was no justification for ignoring them when determining whether an economic entity was in existence in the hands of the transferor.
41. Strictly it is not necessary to determine the second issue. However, in our opinion the Respondents are correct on this point also. The issue is not perhaps as clear cut as the first one but we accept that, even if the contracts were void and could not be enforced by the employees, this would not prevent the Tribunal from having regard to them.
42. This is not a case where it is alleged that the undertaking was itself an illegal one, when different considerations might apply. Nor does a finding that TUPE applies preclude the transferee, in a suitable case, from setting up the illegality of the contract with the transferor as a defence to a claim made against him in subsequent proceedings.
43. We are persuaded that the authority to which he had made reference all support the argument the Tribunal is entitled to consider all factual issues when determining whether an economic entity exists and has been transferred. The question of the legality of the contracts is a question which becomes material, if at all, at a later date.
44. In reaching this conclusion we have borne in mind some observations of the Court of Appeal in the case of Hall v Woolston Hall Leisure Ltd [2000] IRLR 578. In that case Mrs Hall was employed as a head chef by the Respondent. She was dismissed essentially on the grounds of redundancy and incapability but alleged that the real reason was breach of the Sex Discrimination Act 1975.
45. The employers took the point that she had known that her contract had been tainted with illegality. This was because she was paid in a manner which in effect was to defraud the Revenue. She acquiesced in this arrangement although she did not personally benefit from it. The Court of Appeal held that, notwithstanding this illegality she could enforce her sex discrimination claim.
46. The case is not directly relevant here but there is a passage in the judgment of Mance LJ at paragraph 65 of the decision which has some bearing on this case, so it seems to us. One of the employee's arguments had been that whatever the rules on illegality in English law the Equal Treatment Directive did not provide any exclusions for illegality. Accordingly she submitted that she should be entitled in the light of the Directive to enforce her rights and that any domestic jurisprudence to the contrary should simply be ignored.
47. Mance LJ dealt with this argument as follows:

65 "I do not consider that one can go straight from the proposition that the Directive admits no general reservation or qualification to a conclusion that it is axiomatically irrelevant if a particular employment is tainted by illegality under domestic law. The Directive states its purpose in terms of access to employment and vocational training and working conditions, including conditions governing dismissal. The duty on member states, and, for matters within their jurisdiction, the courts, is 'to take measures which are sufficiently effective to achieve the aim of the Directive and [to] ensure that the rights thus conferred can be effectively relied upon before the national courts by the persons concerned'. In none of the cases before the European Court of Justice was the nature of the prospective employment, vocational training or working conditions in any way tainted by illegality. The elimination of discrimination based on sex is a fundamental personal human right which the Directive is intended to ensure: see Defrenne v Sabena [1978] ECR 1365, paragraphs 26-27. But, on a proper understanding of both the Directive and this fundamental principle, there may be limits, in terms of legitimacy, to the 'access to employment' and 'working conditions' in relation to which the Directive aims at eliminating discrimination. The draftsmen of the Convention are unlikely to have set out to confer protection in respect of – indeed are probably are unlikely even to have contemplated – employment, vocational training or working conditions the essence of which was illegal, for example employment, training or working conditions as part of a hit-squad of by a company known to have been established to carry out bank robberies or to launder stolen money. It would seem improbable, therefore, that a national court called upon to shape its national law as far as possible 'in the light of the wording and purpose of the Directive in order to achieve the result pursued by the latter' would be expected to afford a remedy even for sex discrimination in such a context. But any limitation of this nature in the protection in respect of sex discrimination afforded by the Directive must be derived from the wording and purpose of the Directive. It cannot be determined by any rule of domestic public policy, especially one which is not a principle of justice and may operate indiscriminately."

48. That passage indicates that if there is to be a restriction imposed on Tribunals as to the factors which they can consider when determining whether or not an economic entity exists in the hands of the transferor, that restriction must be found within the framework of the Directive. It is not enough that it might be found in principles of English public policy.
49. In this case we are satisfied that the rule being advanced by the Appellant would not be consistent with the Directive. It would operate indiscriminately and could defeat the legitimate claims of transferred staff who may have behaved perfectly lawfully at all times. Moreover, the jurisprudence of the Directive requires a consideration of all relevant factors: see for a recent example the Oy Liikenne case, paragraph 33, to which we have made reference.
50. We see no reason why these factors should not include contracts, even if they are void, under the English law. Accordingly, for both these reasons, we reject this appeal.