Dynamex Friction Ltd & Anor v Amicus & Ors

This is a case concerning the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”). In a nutshell the critical question is this: was the Employment Tribunal justified in concluding that the employees had been dismissed for an economic reason rather than for a reason connected with the transfer of the undertaking in circumstances where, on the one hand, the administrator of a company, acting properly in the discharge of his professional duties and not at any time in collusion with its managing director nor with the purchaser of its business of the company, decided to dismiss the employees because there were no funds available to pay them, yet where, on the other hand, the administrator may have been the “unwitting tool” of the director who had stage-managed the placing of the company in administration knowing that the dismissals were inevitable and that a sale of the business to the purchaser was likely and harbouring the hope if not the expectation that he would soon take over the purchaser?

In related claims, the trade unions Amicus and the T&GWU brought claims for protective awards under the Trade Union and Labour Relations (Consolidation) Act 1992 and the individual employees brought various claims for unfair dismissal or redundancy payment entitlements and for other relief. By a decision promulgated on 22nd June 2006 the Employment Tribunal sitting at Shrewsbury (“the Shrewsbury tribunal”) held that there had been a failure to consult the Unions but that the individual claimants were not employed by Friction Dynamics Ltd (“Friction”) immediately before the transfer of the business to Dynamex Friction Ltd (“Dynamex”) having regard to the provisions of Regulation 5(3) of TUPE. Accordingly their claims arising out of their dismissals for either a basic award for unfair dismissal or a redundancy payment fell to be payable by the Secretary of State for Trade and Industry who is statutorily liable for such claims given Friction’s insolvency. By a judgment handed down on 28th March 2007 the Employment Appeal Tribunal (“E.A.T”), His Honour Judge Peter Clark presiding, allowed appeals by the Union and the Secretary of State and remitted the matter back to the Employment Tribunal broadly holding that the Employment Tribunal had failed to find relevant facts which were in dispute and which may have led to a different conclusion. Dynamex is now in liquidation. Ferotec Realty Ltd (“Realty”), a respondent to the original applications, now appeals to this Court.

Let me now attempt to unravel a complicated story in a little more detail. Turner and Newall Plc, or one of its subsidiaries, carried on business in Caernarfon in the manufacture of friction parts for car brakes and clutches. The business in its heyday employed about 1,000 people but by 1997 there were significant redundancies and the staff was reduced to about 200. It was at this time that an American, Mr Craig Smith, moved in. He and his family incorporated a holding company named Ferotec Ltd with several subsidiaries including Realty and TBA Textiles Ltd (“TBA”). Friction acquired the manufacturing business but Realty owned the land which was then leased to Friction. Craig Smith was the managing director of Friction though his son had the day-to-day running of the business. In 1998 they decided to restructure the business in order to improve its functioning from the point of view of productivity and cost. As I understand it, TBA was the supplier of the raw materials and a USA Smith family company, FDL, was the primary customer for the manufactured parts. This may have caused problems with the two unions on the site, Amicus and the T&GWU. Following a ballot in which a large majority of the T&GWU members voted in favour of industrial action, a strike was called by the Union in April 2001. The company’s response was to repudiate the contracts of employment with the result that 86 of the strikers were dismissed. They brought claims before the Employment Tribunal in Liverpool and in December 2002 that Tribunal found that they had been unfairly dismissed. The compensation which would have become payable to the strikers by Friction was estimated to amount to approximately £3 million.

This added to the financial problems faced by the company. On 14th January 2003 Craig Smith told a Mr Evan Williams, an employee, that, as found in paragraph 10 of judgment of the Abergele Employment Tribunal in a preliminary hearing in September 2004 about which more later:

“Friction would not be paying the strikers following the decision by the Liverpool Employment Tribunal as the company did not have the money to pay them. The company had stocks on floor probably worth £1 million but if it went into liquidation these stocks would be hard to sell as they were highly specialised and would probably be sold only at 10% to 20% of their value, giving about £200,000 to its creditors. It had been stated by Mr Craig Smith that there was someone who was probably interested in buying the stock and after going into liquidation/administration the company might be able to carry on trading or be back in business within a month, or maybe a few weeks. It is interesting to note the prediction made by Mr Craig Smith as this is almost exactly what happened and transpired over a period of months up to August 2003.”

In May 2003 Craig Smith consulted an accountant, Mr Robert Rutherford, for advice and the correspondence, which we have not seen, apparently shows that Mr Rutherford took the view that the company, though then solvent, would become insolvent once the awards of damages were made. There was discussion about Ferotec being able to purchase the stock and continue Friction’s business. There was a recognition that an administration order would result in the dismissal of the entire workforce.

The Abergele Tribunal also accepted evidence that the regional officer of Amicus had a meeting at the factory on 23rd July 2003 with a Mr Derek Weir, Friction’s sales manager who was later to become a shareholder in the company acquiring the business of Friction. The Tribunal found:

“10.

… In this meeting he [the Amicus officer] expressed concerns in relation to the intentions of Mr Craig Smith and painted a hypothetical scenario saying that Friction could go into receivership as a stage-managed event and that the company would then rise Phoenix-like out of the ashes and be controlled remotely by Mr Smith. Derek Weir’s response to this was “You’re not a million miles away.” Mr Weir was present at the hearing representing Dynamex and accepted the evidence of Mr Hamilton …”

The Abergele Tribunal also made these findings with regard to events that then happened:

“9.

… [Mr Rutherford] recalls that during a meeting with Craig Smith on 29th July 2003 it had been stated that [Friction] had been advised that any appeal relating to the decision on liability by the Liverpool Employment Tribunal would not be successful. Furthermore, it is accepted at this stage that allegedly there was insufficient money to pay employees in the future – hence there would be no alternative but to consider dismissing them. Ultimately, following his discussions with Mr Craig Smith it was accepted and decided to attempt to sell the business of Friction as a going concern and also its assets at the earliest opportunity. The employees of Friction were on holiday period which it is believed commenced on 1st August 2003 and the business would have been closed until Monday 18th August 2003. It is understood that the factory normally closed in August of each year for maintenance and repairs to be carried out. In the circumstances, Mr Craig Smith decided to petition for an administration order and this was granted with effect from 7th August 2003 and Mr J. Moran and Mr R.M. Rutherford were appointed as joint administrators of that date.” [I interpolate that a purpose of the administration was the more advantageous realisation of the assets than would be achieved on a winding-up.] “In consequence of the appointment, Mr Rutherford went to the factory in Caernarfon on 7th August 2003 but there were only half a dozen or so employees present – these were mainly office workers. He spoke to them and said they were dismissed and he arranged for a dismissal letter to be sent out to all of those employees who were dismissed on 8th August 2003 (see page 203 …). It is accepted by the Tribunal that, as stated by Mr Rutherford, there was no money in the bank and unless arrangements could be made for the transfer of the business and its assets with effect from 18th August 2003 the company may well have been insolvent and have to cease to trade.”

In those circumstances it was crucial that Mr Rutherford dispose of the business as soon as possible. The Abergele Tribunal continued in paragraph 9:

“It is further accepted, as stated by Mr Rutherford, that there was no time for advertising the sale of the business and that he had to expeditiously sell it as a going concern. It is accepted that he sent a letter to all creditors on 7th August 2003 advising them as to the administration order … and asking them if they were interested in acquiring the goodwill, assets and undertaking of the company and, if so, to apply for details. It is further accepted that on 12th August 2003 financial information was circulated by him to nine interested parties requesting their best and final offers by 10 am on 15th August 2003 (see page 529 …). The Tribunal notes from the letter dated 12th August 2003 written by the manager, Assets Finance of Davenhams Trust Plc” [who had some debenture in its favour] “that in that letter she says that they are aware that the Directors [of Realty] are wishing to purchase the assets and have plans to sublet the assets and the building. This reinforces the contention that there were special arrangements taking place between [Dynamex] and [Realty] during the period 6th-28th August 2003 in respect of the previous business and undertaking of [Friction] (see page 574 …). It was also accepted that he received an email dated 14th August 2003 from Mr Mark Jones giving an offer to the administrator and incorporating a business plan (see page 521 …). It is further accepted that Mr Rutherford made arrangements for a press release on 15th August 2003 relating to the fact that Dynamex had made an offer to take over the production line and had allegedly reached an agreement with Davenhams as to its charge over the production line, parts and machinery (see page 204 …). The Tribunal has of course noted that [Dynamex] was not incorporated until 26th August 2003 (see page 745 …). It is accepted from the evidence of Mr Rutherford that following certain advice that he had received from Singletons as valuers … the parts and machinery of Friction (amounting to approximately 5% which was not subject to a charge in favour of Davenhams) was sold to Realty for £50,000. … It is further accepted from the evidence of Mr Rutherford that the production line and customers of Friction were sold to the sponsors/promoters with effect from 15th August 2003 for the benefit of Dynamex which was incorporated on 26th August 2003. It is also accepted that on 18th August 2003 the sale of the parts and machinery which were not subject to any charge had been effected and transferred to Realty which of course owned the premises which had been leased in Caernarfon to Friction.”

It appears from evidence Mr Smith gave the Shrewsbury Tribunal that Mark Jones, who became a director of Dynamex, was a former employee of Friction. Mr Smith admitted that he had helped Mark Jones formulate a business plan after Mark Jones had indicated that he had an interest in acquiring the business of Friction. He also belatedly admitted that some four or six months after Dynamex had been incorporated he purchased the shares of Mr Weir, Mr Thomas and Mr Paul Jones which gave him a 60% interest in Dynamex, that he dismissed Mark Jones and effectively ran Dynamex.

The hearing at Abergele in September 2004 was to determine, among other things, a preliminary issue as to whether there was a transfer of an undertaking from Friction to Dynamex and/or Realty and/or TBA pursuant to regulation 3 of TUPE. That Tribunal was not required to consider regulations 5(3), 8(1) and (2) which fell for later decision by the Shrewsbury Tribunal. The Abergele Tribunal concluded:

“16 Following the transfer of the business, Dynamex paid to Realty each month £51,000 to cover £14,000 for the hire of plant and machinery, £12,000 as a facility service charge and £25,000 rent for the premises at Caernarfon. The Tribunal has looked at the reality of the situation and as from 28th August 2003 Dynamex was running the production line and had acquired the customer list of Friction. It was dependent upon using the premises leased from Realty and using plant and machinery owned by Realty. Dynamex and Realty were intertwined and conjoined in jointly running the undertaking which had previously belonged to Friction and which was quite clearly still a stable, economic entity. Dynamex and Realty between them conducted the same business in the manufacturing and sale of friction parts for car brakes and clutches, using the same trading name as had previously been used by Friction, using the same premises, using the same plant and machinery, using the customer list, supplying the same customers and employing a workforce made up entirely of former employees of Friction. Although it is most unusual, the Tribunal is satisfied that in this particular instance there was a transfer from the previous undertaking and stable economic entity of Friction jointly to Dynamex and Realty. The Tribunal finds that there was no transfer of any part of the undertaking to [TBA]. TBA purchased some finished products and raw materials but this was not the transfer of a stable, economic entity or capable, on the facts, of being a transfer of part of the undertaking. ”

The outstanding questions whether the dismissed employees were employed “immediately before the transfer” within the meaning of regulation 5(3) of TUPE and whether the reason for the dismissals related to the transfer or was an economic one within the meaning of Regulation 8 were heard by the Shrewsbury Tribunal over eight perhaps sometimes interrupted days on 18th-20th and 24th-28th April 2006. There were also issues before the Tribunal relating to the failure to consult with the Unions and that need not trouble us. By this time Dynamex was in liquidation and neither Dynamex nor Friction took any part at that hearing. Realty was represented by Mr Craig Smith and he gave evidence as did a number of union officers and Mr Rutherford. The same chairman, Mr A.B. Rees, presided at Shrewsbury as he had at Abergele. The Shrewsbury judgment lies at the heart of this appeal. It needs careful analysis and to that I turn.

First a word about judgments in the Employment Tribunals: rule 30 in the first schedule to the Employment Tribunals (Constitution and Rules etc) Regulations 2004 requires the Tribunal or the chairman to give reasons for its judgment and in particular:

“(6)

Written reasons for a judgment shall include the following information –

(a)

the issues which the tribunal or chairman has identified as being relevant to claims;

(b)

if some identified issues were not determined, what those issues were and why there were not determined;

(c)

findings of fact relevant to the issues which have been determined;

(d)

a concise statement of the applicable law;

(e)

how the relevant findings of fact and applicable law have been applied in order to determine the issue; …”

Mr Rees did not fully comply with those strictures but that is not necessarily fatal to the integrity of his judgment because, as this Court held in Balfour Beatty Power Networks Ltd v Wilcox [2006] EWCA Civ 1240, [2007] I.R.L.R. 63 in [25] per Buxton L.J.:

“… the rule is surely intended to be a guide and not a straitjacket. Provided it can be reasonably spelled out from the determination of the Employment Tribunal that what rule 30(6) requires has been provided by that tribunal, then no error of law will have been committed.”

To make good the criticisms of the judgment I must set out how it is structured. In paragraph 6 the Tribunal set out the history drawing that part from the earlier Abergele judgment which it clearly had in mind and to which it must, by necessary inference, have paid due respect and must have followed.

Paragraph 7 recites the oral evidence from Mr Rutherford:

“As far as he was concerned [Friction] could not carry on business; he had no available cash and he had no alternative but to dismiss all of the employees on day one of his appointment – that is with effect from 7th August 2003.”

He dealt with the solvency of the company saying:

“As far as the book value of [Friction] is concerned at that time it was “solvent”. It would have been “insolvent” if for instance the contingent liabilities” [which would include the compensation payable to the strikers] “had been taken into account. Moreover the parts and machinery were worth considerably less than the book value in the balance sheet, if sold. As far as he was concerned he had been given no indication whatsoever that the Smith family companies were dependent on the continued existence of [Friction]. He had no idea who re-employed some of the former employees on or about 15th August 2003.”

Then follows this important observation:

“At the hearing it was accepted by all of the parties’ representatives that there had been no collusion whatsoever between Mr Rutherford, as joint administrator, and the subscribers to the formation of [Dynamex] which, as stated, was incorporated on 26th August 2003.”

The Tribunal then set out a summary of the evidence heard from Mr Craig Smith. Included in that résumé were these points:

“It was maintained by Mr Smith that he had been advised by Mr Rutherford that the best time to close down [Friction] and to seek a sale of the company as a going concern would be at a time when there would be the least impact on customers. As the factory was closed on 1st August 2003 and was not due to open again until 18th August the administrator, without seeking any advice from Mr Smith, decided that it would be prudent to dismiss all of the employees with effect from 7th August 2003.”

As to the sale of the business he said:

“It was admitted by Mr Smith that he knew that the administrator had written to seven or eight interested parties who were interested in purchasing the business and he himself had helped to show some of the parties around the factory premises. Mr Mark Ivor Jones had originally worked for [Friction] and in a telephone conversation with him Mark Jones indicated he had an interest in acquiring the business of [Friction]. Indeed he helped Mark Jones formulate a business plan.”

Mr Smith then took issue with evidence given by Mr Evan Williams about the meeting on 14th January which I recited at [4] above. He said:

“As far as he [Smith] was concerned at that meeting he pointed out that [Friction] had very severe financial problems and in consequence it had to sell the parts, machinery and equipment to Davenhams and arrange for invoice sales to be paid at a discount by Eurosales. For cash flow purposes [Friction] was completely dependent upon Eurosales. The general creditors were also discussed at that meeting and the fact that David Lang had an interest in buying the shares of [Friction] and [TBA]. There was also an interest from Derek Weir [and others] if they could get a grant from the Welsh Development Agency to enable them to acquire the shares of [Friction]. He maintained that at that time he was only interested in the sale of [Friction] and wanted to get out of the business. By that he meant all of the businesses in which the Smith family were involved in the United Kingdom.”

There was also a challenge to the evidence given by Mr Hamilton, the trade union representative, but it is not possible from the judgment alone and without sight of Mr Hamilton’s witness statement to know precisely what was challenged. He did accept that he told Mr Hamilton that Mark Jones was interested in acquiring Friction but the Smith family were not to be involved. He admitted that some four or six months after Dynamex had been incorporated he acquired a 60% interest in that company:

“He maintained that he had also never mentioned to Mr Hamilton that the acquisition by Mr Jones was to be a definite transfer and he did not ask anyone to join Mark Jones simply helped him put his business plan together. He had no idea how Mark Jones had set up his company. He agreed that the administrator, Mr Rutherford, had indicated that he was going to dismiss all of the employees, but he had no idea he would dismiss them on the first day of his appointment.”

Paragraph 9 of the judgment records the evidence received from the trade union representative. In summarising the evidence given by Mr Hamilton the Tribunal record:

“He maintains that the whole administration had been stage-managed, and that Mr Craig Smith was still in control of the administration.”

Mr Evan Williams repeated his evidence about the meeting on 14th January referred to in [4] above.

The evidence given by individual claimants was not of relevance to the issue with which we are dealing.

The Tribunal then set out in paragraph 10 the issue as follows:

“The primary question for us is as to whether the dismissed employees were employed “immediately before the transfer”.”

The Tribunal correctly addressed itself that:

“The purpose of the directive [Council Directive (77/187 E.E.C.)] and the regulations as stated in the written submissions of Mr Allen [counsel for Amicus] is to ensure that on any transfer of an undertaking the employment of the workers in the undertaking is preserved or if the employment transfers” [sic - I think it must mean “terminates”] “by reason of the transfer their rights arising out of that determination are effectively safeguarded and that there is a mandatory obligation to provide effective and not merely symbolic remedies. The Tribunal as stated in these cases had been on the look out for any devices designed to evade regulation,” (emphasis added by me.)

Paragraph 11 is another long paragraph. It sets out regulations 5 and 8 of TUPE but then it goes on to deal with Mr Allen’s submissions which should more elegantly have been set out in a separate paragraph:

“He maintains, of course, that the unusual feature of these cases is that either the administration itself or at the very least the timing of the administration and, therefore, the dismissals which Craig Smith knew would follow thereafter were controlled by the Smith family group of companies. … He maintains that there was collusion between Mr Craig Smith and the transferees (namely Dynamex Friction/Ferotec Realty). His argument is that the Smith family companies had an interest in the continuing of the former business of Friction Dynamics free of liability to the TGWU, Amicus and the former employees of Friction Dynamics, many of whom had very long service and would, therefore, have been expensive to dismiss otherwise. The Tribunal had noted the inferences to be drawn from the structure of the companies and from the matters listed in paragraph 24 of his written submissions. The Tribunal has also carefully noted the inferences put forward by Miss Hewitt on behalf of the [Secretary of State] in paragraph 7 of her written submissions. It was maintained by Mr Allen that Mr Craig Smith got the administrators into Friction Dynamics having made arrangements for the business to continue under a new name in order to free himself of various liabilities to former employees. Therefore, he contends that the dismissals which automatically followed the appointment of the administrators are transfer related. He further submits that the timing and order of events were stage-managed in order to by-pass the operation of the TUPE regulations except that the administrator, Mr Rutherford, may have been an unwitting tool of Mr Smith’s machinations. As far as that is concerned the Tribunal, as indeed was accepted by all of the representatives at the hearing, finds that there was no collusion whatsoever between the administrator, Mr Rutherford and either [Dynamex] or Mr Craig Smith. It was accepted that Mr Rutherford carried out the correct procedures in connection with his duties as administrator. He thought it right, proper and necessary to dismiss all of the employees with effect from 7th August 2003 particularly in view of the fact that there was no cash available to pay wages to employees after 18th August 2003 in so far as hourly paid workers were concerned and also that there was no money to pay the monthly staff who had only been paid up until 31st July 2003. The Tribunal, in particular, does not accept that it is a reasonable inference that the transfer was pre-planned and that it was clear to Mr Smith before he petitioned for the administration order that there would a transfer to Mr Mark Jones.”

To summarise paragraph 23 of Mr Allen’s written submissions, he had urged the Tribunal to take into account the following factors:

Miss Hewitt relied on many of the same matters which she set out in paragraph 7 of her written submissions. These were the main but not the only points she made:

In paragraph 12 of its judgment the Tribunal recorded the accepted position that if regulation 8(1) did not apply, then the individual claimants were either unfairly dismissed or dismissed by reason of redundancy, and, Friction being insolvent, the Secretary of State would have to pay the basic awards or redundancy payments.

Paragraphs 13 and 14 dealt with the claims for protective awards and I need not trouble with that.

In paragraph 15 the Tribunal returned to the facts saying – and these are findings of fact –

“The Tribunal is satisfied on the facts that the administrator had no cash available to pay hourly paid employees after 18th August 2003 and monthly paid employees had only been paid up until 31st July 2003. There was on the facts an absolute requirement and necessity to find a purchaser for [Friction] prior to 15th August 2003. The administrator circulated details to all possible interested parties but there was only one actual and viable purchaser and these were the subscribers to the formation of [Dynamex]. Thereafter Dynamex Friction Ltd was incorporated on 26th August 2003 and took over the business of the first respondent but it is accepted that the subscribers commenced business with effect from 15th August 2003.”

Thus in paragraph 16 the Tribunal returned to the “crucial and vital question … as to whether the individual claimants had been employed in the undertaking of [Friction] immediately before the transfer which took effect on 15th August 2003 having regard to the provisions of regulation 5(3) of TUPE”. The Tribunal considered Litster v Forth Dry Docks and Engineering Co Ltd [1990] 1 A.C. 456 and Secretary of State for Employment v Spence [1987] 1 Q.B. 179. The Tribunal then repeated and slightly extended its finding of fact on collusion saying:

“The Tribunal is satisfied on the facts that there was no collusion by the administrator with [Dynamex] and also no collusion by the administrator with Mr Craig Smith. Similarly it is satisfied that Mr Craig Smith was not in collusion with the subscribers of [Dynamex].”

The crucial findings are in paragraph 17:

“In this particular case before us the Tribunal is satisfied that the reason or principal reason for the dismissal of all the employees with effect from 7th August 2003 was an economic one and regulation 8(1) does not apply. Moreover it was not for a reason connected with a transfer. In those circumstances the additional words added to regulation 5(3) by Lord Oliver in the Litster case do not apply. It therefore follows that the claimants in these cases were not employed by [Friction] immediately before the transfer and liability for the claims made by the claimants remains with [Friction]. As it is “insolvent” it rests with the Secretary of State as statutory guarantor for the relevant liabilities.”

Paragraph 18 is something of a summary:

“As stated, the administrator Mr Rutherford dismissed all of the employees with effect from 7th August 2003 because there were no assets to pay them at that stage. He had no alternative but to so dismiss them. There was the possibility of the sale of the business. Interested parties had been approached but it was not until 15th August 2003 that the subscribers to [Dynamex] came up with a definite offer which was accepted. The situation is completely different from that in the Litster case where the transferor and the transferee were in collusion to avoid liability transferring it to the transferee. This particular case is more closely akin to that of the case of Honeycombe 78 Ltd where the claimants were not employed in the business immediately before the transfer. On the facts it is also abundantly clear that the actual transferees had not been identified at or before the dismissal of the employees. The administrator dismissed them for economic reasons forthwith on 7th August 2003. At that time on the facts the Tribunal is satisfied that there was no certainty of the sale of the business of [Friction] being effected. The economic reasons for dismissal were paramount. On the primary facts, as found, the Tribunal is satisfied that it has no alternative but to conclude that the reason why the administrator Mr Rutherford, effected the dismissals was economic because, as stated, there was no money to pay the wages and as at 7th August 2003 there was no immediate possibility of a sale to a new company. The administrator dismissed all of the employees in spite of any potential sale, not with a view to effecting it but simply for economic reasons. The Tribunal finds on the facts that there was no relevant transfer of the business of [Friction] to [Dynamex] and [Realty] immediately before the dismissal of the claimants”. [The emphasis is added by me.]

The Tribunal ruled accordingly.

I have quoted from this judgment at great length, perhaps at too great a length, because of the attack made upon it in the E.A.T. to whose judgment I now turn, reminding myself that this Court is primarily concerned with the correctness of the Employment Tribunals decision.

The challenge launched by Amicus and the Secretary of State was principally directed at the failure to give adequate reasons and the failure to take relevant factors into account. There is an overlap between them. In the judgment of His Honour Judge Peter Clark, there was no analysis by the Employment Tribunal of the evidence leading to its findings of fact which inevitably led to the risk of material factual disputes being left unresolved, for example, the evidence of Mr Hamilton about the possibility of Phoenix rising from the ashes not being a million miles away from the truth. Mr Smith challenged that but that factual dispute was never resolved. Conflicts between the evidence of Mr Smith and Mr Hamilton also remained undecided. These are justified criticisms of the Employment Tribunal.

The E.A.T. then dealt with the second main criticism that the Employment Tribunal had failed to deal in detail with the factual case advanced by the appellants in paragraphs 23 and 7 of the written submissions which I have already recited, all of which invited the inference that the administration of Friction and the subsequent transfer of that business to Dynamex and Realty was “stage-managed by Mr Smith”. The conclusion was:

“31.

In our judgment it is simply not sufficient for the Employment Tribunal to record as noted those paragraphs in Counsel’s closing submissions. It is, of course, well-settled that an Employment Tribunal does not have to set out in their reasons each and every point put before them. However, we accept Mr Allen’s submission that the detailed points advanced in both closing addresses represented a carefully framed factual picture designed to make the Appellant’s case that an intricate web had been woven by Mr Smith, using the Administrator as an ‘unwitting tool’ to circumvent the TUPE provisions. Whether that case is made out or not is for the Employment Tribunal to decide; but in reaching a determination it is incumbent, in our view, on the Employment Tribunal to demonstrate by its reasons precisely what material findings of fact it made and why it declined to draw the inference which the Appellants asked it to draw. This the Employment Tribunal failed to do.”

Thirdly the E.A.T. concluded:

“The Appellants literally do not know why their case based on inferences to be drawn from the primary facts was rejected.”

It followed that in the view of the E.A.T. , the Employment Tribunal’s reasons were not “Meek-compliant”, a reference to Meek v City of Birmingham [1987] I.R.L.R. 250.

The E.A.T. then considered the reason for the dismissals identifying the principal issue to be whether the dismissals were for an economic reason or for a reason connected with the transfer. In this regard the E.A.T. asked:

“35.

The question which has troubled us in this connection is, whose reasons are we concerned with? The dismissals were effected by Mr Rutherford as administrator of [Friction]; he was not, it is common ground, in collusion with Mr Smith (cf the collusion found as fact in Litster between the receivers and the transferee). His stated reason, accepted by the Employment Tribunal, was purely economic; the business had no assets out of which to pay the wages. In these circumstances, is it relevant for the Employment Tribunal to consider whether or not events were staged-managed by Mr Smith, even if the Appellants’ case was accepted?”

It is not at all clear to me that the E.A.T. satisfactorily answered those questions, certainly not the first of them. The E.A.T. did accept the Secretary of State’s argument that “the Employment Tribunal took too narrow a view of the issue before them in the present case by relying too heavily on Honeycombe which, rather than raising a principle of law, merely applied the law as found in Litster to the facts of that case”. The E.A.T. concluded:

“Whilst we can see the similarities between Honeycombe and the present case, based on the Employment Tribunal’s factual conclusions, the result there may have been different had a factual case similar to that advanced by the Appellants and rejected in the present case been established. It all depends on the facts and, for the reasons given earlier, we find that the Employment Tribunal failed to adequately explain its reasons for the factual conclusions which it reached.”

At the risk of oversimplification the issues appear to me to be:

1.

By reference to whose decision does the Employment Tribunal have to ascertain whether the reason for the dismissals was the transfer of the undertaking or an economic one?

2.

If the reason was that which operated on the administrator’s mind unaffected by the actions of Mr Smith, were Smith’s Machiavellian machinations, taking all of them as proved and all of them at their highest, such that an Employment Tribunal, properly directing itself, could conclude that the reason for the dismissal was not an economic one but one related to the transfer of the undertaking?

I mean no discourtesy to the cogent written and oral submissions of counsel if I summarise their contentions very briefly. Mr Hand Q.C., who now appears for the appellant, Realty, submits that one can discern from the judgment of the Employment Tribunal all the elements necessary for a properly reasoned and adequate decision. In so far as it is material to look at the E.A.T.’s judgment, its error was not to answer its own question in paragraph 35 of its judgment. It should have decided that it was concerned with the reasons of the administrator and consequently consideration of whether or not events were stage-managed by Mr Smith were irrelevant. Mr Hands “simple” submission is that the decision was that made by the administrator. His reason cannot be supplanted or altered by reference to external factors about which the administrator did not know. The reason he had for dismissing the employees was purely economic and if his decision counts, then the argument that he was “an unwitting tool” simply falls away.

Mr Ralls Q.C. who now appears for Amicus, submits that the court must be astute to ensure that the purpose of the regulations is not defeated by any device intended to circumvent them. Smith controlled the circumstances which led to the application to place the company in administration and the timing of that application with the objective of escaping liability to the strikers whilst at the same time having every expectation that the company would have to be sold to Dynamex which was so dependent upon Realty that it would eventually fall back into the Ferotec empire. He wryly concedes that if the administrator’s decision governs the question, then he is “a shot fox”.

Miss Hewitt, who again appears for the Secretary of State, concludes her written submission by stating that if it can be established that an inevitable dismissal by an administrator was engineered by a transferor and/or transferee company in order to defeat the TUPE regulations, then it must follow the effective cause of the dismissal and the real reason or principal reason for it was the transfer or a reason connected with it. If this were not so, and if the appellant’s submissions are correct, then the TUPE regulations would be capable of ready evasion in many cases.

The regulations were passed in order that we comply with Article 4 of the Acquired Rights Directive (77/187 E.E.C.). The object of the Directive was expressed to be:

“To provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safe-guarded …”

Section 2 deals with “safe-guarding of employees rights” and provides, so far as material:

“1.

The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer within the meaning of Article 1(1) shall, by reason of such transfer, be transferred to the transferee.”

Article 4 is, so far as material, in the following terms:

“1.

The transfer of an undertaking, business or part of a business shall not in itself constitute grounds for dismissal by the transferor or the transferee. This provision shall not stand in the way of dismissals that may take place for economic, technical or organisational reasons entailing changes in the work-force.”

Regulations 5 and 8 of TUPE are material for our purposes. They provide:

“5 Effect of relevant transfer on contracts of employment, etc.

(1)

Except where objection is made under paragraph (4A) below [which does not apply here], a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee.

(2)

Without prejudice to paragraph (1) above … on the completion of a relevant transfer—

(a)

all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee; and

(b)

anything done before the transfer is completed by or in relation to the transferor in respect of that contract or any person employed in that undertaking or part shall be deemed to have been done by or in relation to the transferee.

(3)

Any reference in paragraph (1) or (2) above to a person employed in an undertaking or part of one transferred by a relevant transfer is a reference to a person so employed immediately before the transfer, including, where the transfer is effected by a series of two or more transactions, a person so employed immediately before any of those transactions.

…

(8)

Dismissal of an employee because of relevant transfer

(1)

Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part V of the 1978 Act and Articles 20 to 41 of the 1976 Order (Unfair Dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal.

(2)

Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee –

(a)

paragraph (1) shall not apply to his dismissal; …

…

(12)

Restriction on contracting out

Any provision of any agreement (whether a contract of employment or not) shall be void in so far as it purports to exclude or limit the operation of Regulations 5, 8 or 10 above or to preclude any person from presenting a complaint to an Employment Tribunal under Regulation 11 above.”

In Secretary of State for Employment v Spence two questions arose, namely, (1) was there a relevant transfer of the undertaking; and (2) were the employees employed by the company immediately before the transfer? The case was thus concerned with regulation 5 rather than regulation 8 but it is nonetheless interesting to observe the way Lord Oliver of Aylmerton commented on this case with approval in the important decision of Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 A.C. 546, 574:

“In that case [Spence] the transferor company was in receivership and the receivers had been negotiating a transfer of the business under a threat by the company's major customer to withdraw its work unless a transfer of the business had been agreed by 24 November 1983. No sale had been agreed by that date and although on 28 November 1983 the negotiations were continuing, the receivers had to decide whether it was proper in the interests of the debenture holders to continue to employ the workforce and to continue trading. Since there was no guarantee that the negotiations would be successful, the decision was taken to cease trading immediately and, at 11.00 a.m. on that morning the employees were notified that they were dismissed with immediate effect. In fact, the negotiations were successful and an agreement for the sale of the undertaking was signed at 2.00 p.m. on that day. The employees were in fact re-employed by the transferee but claimed redundancy payments from the redundancy fund under section 106 of the Act of 1978. The claim was resisted on the ground that, since the claimants were employed "immediately before the transfer" their employment was continued with the transferee of the business by regulation 5(1), following the decision in the Anchor Hotel case [1985] I.C.R. 724. It is worth noting that it was found as a fact by the industrial tribunal, first, that the sequence of events was the result of independent action by the receivers and the transferees and that there was no collusion between them and, secondly, that the reason why the receivers decided to dismiss the workforce was that, until a contract could be renegotiated with the company's principal customer, there was no prospect of any work for the business. It follows from these findings that the reason for the dismissal was not one connected with the transfer but was due to economic considerations, with the result that regulation 8(1) did not render the dismissals unfair. …

The Court of Appeal did not consider, and was not called upon to consider, a position where, whether under a collusive bargain or otherwise, an employee is dismissed from his employment solely or principally because of the prospective transfer of the undertaking in which he is employed, so that his dismissal is statutorily deemed to be unfair …”

In Litster itself the twelve applicants worked for the transferor who became insolvent and went into receivership. The receivers agreed to sell the business assets to the transferee and one hour before the transfer took place the workforce were told by the receivers that the business was to close down and that they were dismissed with immediate effect. They were handed dismissal letters which stated that no further funds were available to pay their wages with effect from the close of business. Within 48 hours of their dismissals the applicants, learning that the transferee was recruiting labour, applied to be taken on but none was successful. The transferee preferred to recruit elsewhere at lower rates of pay. The applicants complained of unfair dismissal and the Industrial Tribunal in a decision upheld by the Employment Appeal Tribunal held that the dismissal was for a reason connected with the transfer but that decision was reversed on appeal to the Court of Sessions. That in turn was reversed by the House of Lords. The central questions were whether the employees had been employed by the transferor in the business immediately before its transfer to the transferee within the meaning of regulation 5(3) of TUPE and whether their dismissal was for a reason connected with the transfer and therefore unfair in terms of regulation 8(1). The case is important for establishing the approach to the construction of the regulations as to which Lord Oliver said at p. 559:

“The approach to the construction of primary and subordinate legislation enacted to give effect to the United Kingdom's obligations under the E.E.C. Treaty have been the subject matter of recent authority in this House (see Pickstone v Freemans Plc [1989] A.C. 66) and is not in doubt. If the legislation can reasonably be construed so as to conform with those obligations - obligations which are to be ascertained not only from the wording of the relevant Directive but from the interpretation placed upon it by the European Court of Justice at Luxembourg - such a purposive construction will be applied even though, perhaps, it may involve some departure from the strict and literal application of the words which the legislature has elected to use.”

Applying that he then said at p. 562:

“It may, I think, be assumed that those who drafted both the Directive and the Regulations were sufficiently acquainted with the realities of life to appreciate that a frequent - indeed, possibly, the most frequent - occasion upon which a business or part of a business is transferred is when the original employer is insolvent, so that an employee whose employment is terminated on the transfer will have no effective remedy for unfair dismissal unless it is capable of being exerted against the transferee. It can hardly have been contemplated that, where the only reason for determination of the employment is the transfer of the undertaking or the relevant part of it, the parties to the transfer would be at liberty to avoid the manifest purpose of the Directive by the simple expedient of wrongfully dismissing the workforce a few minutes before the completion of the transfer. The European Court of Justice has expressed, in the clearest terms, the opinion that so transparent a device would not avoid the operation of the Directive ...”

He added at p. 576:

“But it has always to be borne in mind that the purpose of the Directive and of the Regulations was and is to "safeguard" the rights of employees on a transfer and that there is a mandatory obligation to provide remedies which are effective and not merely symbolic to which the Regulations were intended to give effect. The remedies provided by the Act of 1978 in the case of an insolvent transferor are largely illusory unless they can be exerted against the transferee as the Directive contemplates and I do not find it conceivable that, in framing Regulations intending to give effect to the Directive, the Secretary of State could have envisaged that its purpose should be capable of being avoided by the transparent device to which resort was had in the instant case. Pickstone v. Freemans Plc. [1989] A.C. 66, has established that the greater flexibility available to the court in applying a purposive construction to legislation designed to give effect to the United Kingdom's Treaty obligations to the Community enables the court, where necessary, to supply by implication words appropriate to comply with those obligations: see particularly the speech of Lord Templeman, at pp. 120-121. Having regard to the manifest purpose of the Regulations, I do not, for my part, feel inhibited from making such an implication in the instant case.” [I have added the emphasis.]

In the result it was held that there had to be implied into regulation 5(3) after the words “immediately before the transfer” the words “or would have been so employed if he had not been unfairly dismissed in these circumstances described by regulation 8(1)”.

In the passages just quoted, Lord Oliver referred to a transparent device to avoid the operation of the Directive and that observation lies at the heart of this appeal. There are other references of a similar kind which are worthy of note. First Lord Templeman at p. 556 (and in the passages which follow I have added the emphasis):

“The result of regulation 8(1) is the same as article 4(1), namely, that if the new owner wishes to dismiss the workers he cannot achieve his purpose either by procuring the old owner to dismiss the workers, prior to the transfer taking place, or by himself dismissing the workers after the date of the transfer.”

At p. 557 he said:

“Article 3 of the Directive and regulation 5(1) of the Regulations of 1981 were plainly intended to prevent an insolvent old owner from dismissing a workforce at the behest of a solvent new owner so as to deprive the workforce effectively of their rights.”

In Lord Oliver’s speech when he dealt with the facts he said at p. 564:

“This indicates a calculated disregard for the obligations imposed by regulation 10 of the Regulations.”

And at p. 565:

“… the sequence of events and the secrecy with which they were enshrouded are such that they cannot rationally be accounted for otherwise than by the hypothesis that the dismissal of the existing workforce was engineered specifically with a view to preventing any liability for the obligations incidental to their contracts of employment from attaching to Forth Estuary, so as to leave them with nothing but a claim for redundancy on the redundancy fund under section 106 of the Act of 1978 and an illusory claim for unfair dismissal against an insolvent company.”

One sees similar considerations in the opinion of the advocate general, Sir Gordon Slynn in Wendelboe v L.J. Music ApS [1985] E.C.R. 457, ECJ, quoted by Lord Oliver at p. 571:

“Where employees are dismissed, with a view to and before, a transfer falling within the Directive and are re-engaged immediately by the transferee thereafter, their dismissal must be regarded as contrary to articles 4(1), subject to the exceptions specified in that paragraph.”

The exceptions to which the Advocate-General was referring were elaborated by him in a later case Foreningen af Arbejdsledere i Danmark v. A/S Danmols Inventar (Case 105/84) [1985] E.C.R. 2639 in which he commented on the Wendelboe case and observed at p. 2641:

“Under article 4, the transfer does not by itself justify his dismissal by the transferor or the transferee unless such dismissal is for economic, technical or organisational reasons entailing changes in the workforce; . . . The employer who dismisses an employee for one of the reasons specified in article 4(1) can thus justify the dismissal. Otherwise if the dismissal or purported dismissal is based on the transfer of the undertaking or business, the employee can insist on his rights under article 3.”

This case is also useful for its discussion of the crucial question, what is meant by the reference to a contract being terminated “by” a transfer? Lord Oliver said at p. 568:

“This could embrace a number of different possibilities. If nothing at all occurs to disturb the relationship of master and servant apart from the simple unannounced fact of the transfer of business by the employer, it is the transfer itself which constitutes the repudiatory breach which, apart from regulation 5(1), "terminates" the contract. If, however, the employer, contemporaneously with the transfer, announces to his workforce that he is transferring the business and that they are therefore dismissed without notice, it is, strictly, the oral notification which terminates the contract; yet it could not, as a matter of common sense, be denied that the contract has been "terminated by the transfer" of the business, particularly when reference is made to the supplementary provisions of paragraph (2) of regulation 5 when read in conjunction with paragraph (3). Similarly, if the employer, a week, or it may be a day, before the actual transfer, hands to each employee a letter announcing that he is proposing to transfer his undertaking at the close of business on the transfer date, at which time the employees are to consider themselves as forthwith dismissed, it could hardly be contended under the Regulations that their employment had not been terminated by the transfer, even though, at the date of the notice, the dismissal might be capable of taking effect independently, in the event, for instance, of the actual transfer of the business being postponed to a date or time later than the expiry of the notice. In each hypothetical case the employer's repudiation of the contract of service is differently communicated but its essential quality of a repudiation by the transfer of the undertaking remains the same and the contract can quite properly be described as having been terminated by the transfer. If, by contrast, the employer announces to his workforce that he is transferring his business to another person at 5.00 p.m. on the following Friday and that they are to consider themselves dismissed from his employment at 4.59 p.m. on that day, it is difficult to see any reason why the interposition of a one-minute interval between the express repudiation becoming effective and the transfer which would, in any event, have operated as a repudiation if nothing had been said, should invest the breach of contract by the employer with some different quality. In each case the effective cause of the dismissal is the transfer of the business, whether it be announced in advance or contemporaneously, or whether it be unannounced, and it would be no misuse of ordinary language in each case to speak of the termination of the contracts of the workforce as having been effected by the transfer. It is absurd to suggest that there is any distinction in substance between any of the hypothetical cases which I have envisaged. Can it, then, one asks, possibly have been the intention of the Secretary of State in framing legislation expressly directed to safeguarding the rights of employees when an undertaking is transferred, to make its effectiveness depend upon whether the transferor, as a result perhaps of a collusive bargain with the transferee, allows a scintilla temporis to elapse between the operation of a notice dismissing his workforce and the completion of the legal formalities of the transfer which is the true cause of their dismissal, particularly having regard to the provisions of regulation 8, which were clearly intended to have the same effect as article 4 of the Directive? My Lords, I should be reluctant so to construe the Regulations, quite apart from any authority. When, however, they are considered in the light of the interpretation placed by the European Court of Justice on the provisions of the Directive, it becomes, I think, clear that your Lordships are not compelled to do so.” [Once again I have added the emphasis to stress the different result if there is a collusive bargain.]

In summary, one must be vigilant to uphold the purpose of the Directive which is to safeguard the employee’s rights; their remedies must be effective and not merely symbolic or illusory; so one must be astute to spot the transparent device to avoid the operation of the Directive and one will see at once that a collusive bargain corrupts the true reason for dismissal.

Reference has already been made to Honeycombe 78 Ltd v Cummins & ors. In that case the error of the tribunal was that on their findings of primary fact they should have concluded that the principle reason for dismissal was economic, not one connected with the transfer. On the facts of that case, the administrator concluded on the day after his appointment that he would have to dismiss the staff because there were no assets to pay them at that stage and that is what he did. Although the possibility of the sale of the business to a Mr and Mrs Goodman existed, he reached his decision to dismiss the workforce irrespective of their offer to provide funding and their outline proposals to purchase the business. That was the obverse of the situation in Litster where the transferor and transferee were in collusion to avoid liability transferring to the transferee. The facts there were more closely akin to those in Spence. The E.A.T., His Honour Judge Peter Clark again presiding, preferred the submissions of counsel for the purchaser, including his submission that the reason for dismissal must be a reason in the mind of the administrator. The E.A.T. held:

“In the present case there was no finding of collusion between the administrator and Mrs and Mrs Goodman. We accept that such collusion is not a prerequisite for a transfer-related reason for dismissal under Regulation 8(1). … However, we are satisfied that the tribunal fell into error by patently failing to consider whether or not the reason or principal reason for dismissal by the Administrator was an economic reason, thus negativing a transfer-related reason under Regulation 8(1).”

In a judgment which is already too long, it may nonetheless be useful to step back and summarise the issues. This is an appeal against the decision of the E.A.T. allowing the appeal from the Shrewsbury Employment Tribunal and remitting the matter to be heard before a fresh tribunal. That appeal was allowed because:

The appellant does not seek to challenge the E.A.T.’s conclusion that the findings of the Shrewsbury tribunal were inadequate. Rather the appellant’s case is that if all the disputed or undecided facts are resolved in the respondent’s favour, nonetheless this tribunal, and any Employment Tribunal to whom the matter is remitted, was and would be bound to find that the reason for the dismissal of the employees was economic.

It is, therefore, essential to identify exactly what findings the Shrewsbury Tribunal did make as well as take account of those it did not. The Tribunal concluded that the claimants were not employed by Friction immediately before the transfer to Dynamex on or about 15 August 2003 and accordingly the Secretary of State is, as already stated, statutorily liable for all relevant claims arising out of their dismissals. It based that conclusion on the facts it did find, facts which it is now convenient to extract from the judgement and reiterate, giving in parenthesis the paragraph number of the Employment Tribunal’s judgment and the paragraph in this judgment where I have set out the full context:

(1)

“The Tribunal, as indeed was accepted by all of the representatives at the hearing, finds there was no collusion whatsoever between the administrator, Mr Rutherford and either [Dyanamex] or Mr Craig Smith,” (11/[23]). This is repeated in 16/[28];

(2)

“Similarly [the Tribunal] is satisfied that Mr Craig Smith was not in collusion with the subscribers of [Dynamex]”, (16/[28]);

(3)

“It was accepted that Mr Rutherford carried out the correct procedures in connection with his duties as administrator”, (11/[22]);

(4)

“He (Mr Rutherford) thought it right, proper and necessary to dismiss all of the employees with effect from 7 August 2003 particularly in view of the fact there was no cash available to pay wages to employees after 18 August 2003 in so far as hourly paid workers were concerned and also there was no money to pay monthly staff who had only been paid up until 31 July 2003”, (11/[22]);

(5)

“The Tribunal is satisfied on the facts that the administrator had no cash available to pay hourly paid employees after 18 August 2003 and monthly paid employees had only been paid up until 31st July 2003”, (15/[27]);

(6)

“There was on the facts an absolute requirement and necessity to find a purchaser for [Friction] prior to 15 August 2003. The administrator circulated details to all possible interested parties but there was only one actual and viable purchaser and these were the subscribers to the formation of [Dyanmex]”, (15/[28]);

(7)

“There was the possibility of a sale of the business. Interested parties had been approached but it was not until 15th August 2003 that subscribers to [Dynamex] came up with the definite offer which was accepted. This situation is completely different from that in the Litster case where the transferor and the transferee were in collusion to avoid liability transferring it to the transferee. This particular case is more closely akin to that of the case of Honeycombe 78”, (18/[30]);

(8)

“On the facts it is also abundantly clear that the actual transferees had not been identified at or before the dismissal of the employees” (18/[30]);

(9)

“The Tribunal, in particular, does not accept that it is a reasonable inference that the transfer was pre-planned and that it was clear to Mr Smith before he petitioned for the administration order that there would be a transfer to Mr Mark Jones”, (11/[22]);

(10)

“In this particular case before us the Tribunal is satisfied that the reason or principle reason for the dismissal of all of the employees with effect from 7th August 2003 was an economic one and regulation 8(1) does not apply. Moreover it was not for a reason connected with a transfer”, (17/[29]);

(11)

“As stated, the administrator, Mr Rutherford, dismissed all of the employees with effect from 7th August 2003 because there were no assets to pay them at that stage. He had no alternative but to so dismiss them”, (18/[30]);

(12)

“On the facts it is also abundantly clear that the actual transferees had not been identified at or before the dismissal of the employees. The administrator dismissed them for economic reasons forthwith on 7th August 2003. At that time on the facts, the Tribunal is satisfied that there was no certainty of the sale of the business of the first respondent being effected” (18/[30]);

(13)

“The economic reasons for dismissal were paramount. On the primary facts as found, the Tribunal is satisfied that it has no alternative but to conclude that the reason why the administrator, Mr Rutherford, effected the dismissals was economic because, as stated, there was no money to pay the wages and as at 7 August 2003 there was no immediate possibility of a sale to the new company”, (18/[30]);

(14)

“The administrator dismissed all of the employees in spite of any potential sale, not with a view to effecting it, but simply for economic reasons.” (18/[30]); and

“(15)

”The Tribunal finds on the facts that there was no relevant transfer of the business of [Friction] to [Dynamex] and [Realty] immediately before the dismissal of the claimants”, (18/[30]).

There can be no appeal from the Employment Tribunal against findings of fact which the Tribunal make. These were findings of fact which they did make and are, thus, beyond challenge. In my judgment on those facts the Tribunal were wholly justified in coming to the conclusions which they did.

I respectfully disagree with the approach of the E.A.T. in concluding that if the Employment Tribunal had made all findings of fact of matters which were in dispute but were unresolved, this would have made a difference. The Employment Tribunal may not have expressly found the facts in favour of the respondents but they clearly had them all well in mind. That is apparent from paragraph 11 of their judgment which I set out at [22] above. There we see all of the matters upon which the respondents rely in this Court being fairly and in my judgment sufficiently fully addressed. There was express reference to the written submissions of Mr Allen and Miss Hewitt and I do not accept the criticism of the E.A.T. that in the circumstances of this case it was necessary to spell them out as I have done in [23] and [4] above. It is clear the Tribunal had those matters well in mind because it prefaces its the findings by saying, “As far as that [the respondents’ case] is concerned, the Tribunal … finds that there was no collusion whatsoever ...” which was in essence the case the respondents were advancing. The Tribunal roundly rejected that submission (see findings 2 and 9 above).

The Tribunal also fully understood the argument that Craig Smith made arrangements so that he might continue the business under a new name in order to free himself of the liabilities to the former employees. That formed the basis of the contention that the dismissals were transfer-related. So we see the Tribunal recording:

“He further submits that the timing and order of events was stage-managed in order to bypass the operation of the TUPE regulations except that the administrator, Mr Rutherford, may have been an unwitting tool of Mr Craig Smith’s machinations.”

How did the Employment Tribunal deal with that? It said:

“As far as that is concerned the Tribunal … finds that there was no collusion whatsoever between the administrator, Mr Rutherford and either Dynamex or Mr Craig Smith.”

As I read the Employment Tribunal’s judgment, it was fully aware of all relevant aspects of the respondent’s case, all of which are repeated before us. The Employment Tribunal clearly took the view that those matters could not have relevance because they did not impinge upon the decision making by Mr Rutherford who was not complicit in any of those machinations at all. He acted properly.

I agree with that analysis. In deciding whether the reason for dismissal was an economic one or a transfer-related one, one has to identify whose thought process is the subject of this analysis. It has to be he who took the decision. It has to be Mr Rutherford’s decision that comes under the microscope. The Employment Tribunal found as a fact that he decided that he had no option but to dismiss the employees because he had no money with which to pay them. That is an economic reason. True it was that at the time when that decision was taken there was a need to sell the business and there was the possibility that a sale could be achieved. But no purchaser had been identified. No purchaser was identified until a week later. There is nothing to suggest that the administrator took the view that he had to dismiss the staff in order to have a better prospect of selling the business. There is no suggestion, taking up passages from Lord Oliver’s speech, of the dismissal of the existing workforce being engineered specifically with a view to avoiding liabilities to the employees. There is no suggestion of a calculated disregard for the obligations imposed by the regulations. This is not a device, transparent or otherwise, on Mr Rutherford’s part to escape the legitimate claims of the workforce. He was not acting at the behest of or in collusion with either Craig Smith or Dynamex. As the Tribunal found, the administrator dismissed the employees in spite of any transfer not with a view to effecting it. That finding destroys any argument that the transfer had anything to do with the dismissals.

I bear in mind the purpose of TUPE as explained in Litster. The regulations must be construed purposively. But the Directive expressly permits the transferor to justify the dismissals if they take place for economic reasons. Regulation 8(2) correctly encapsulates that purpose and the meaning is plain and needs no elaboration or adjustment as was required in Litster for the proper construction of regulation 5(3). The conclusion that the reason for the change in the workforce was an economic one, seems to me to be an inevitable conclusion to be reached from the facts which were found.

As counsel have identified, the critical question is whose decision was it? Once the answer is that it was the administrator’s decision, then nothing done by Craig Smith before that decision was taken nor after it could have any bearing on the reasons why Mr Rutherford acted as he did. The facts may give rise to the inevitable conclusion that Craig Smith cynically manipulated the insolvency of Friction, saw the opportunity of the August holidays as the best time to place the company in administration and did so not simply with a hope but with every expectation that by reason of Realty’s close association with Dynamex, Dynamex itself would soon fall into his palm. That is what happened. It is not an attractive story. It brings no credit to Craig Smith. But Craig Smith did not decide to dismiss the employees even though he knew that would happen and wanted it to happen. Mr Rutherford dismissed them. He did so for economic reasons.

Having decided as it seems to be to me inevitable that the reasons have to be discerned from the actions of the administrator whose actions were unsullied by Smith’s scheming, then there is only one conclusion for any tribunal to reach: the reason for dismissal was an economic one. As Mr Ralls recognised, if the focus is on Mr Rutherford’s state of mind, then he is “a shot fox”. Unsporting as shooting a fox may be and as lacking in fair play as Craig Smith’s machinations were, I am compelled to allow the appeal and restore the decision of the Shrewsbury Employment Tribunal.

I have come to the conclusion that the appeal should be dismissed because it would not be right to shut out the respondents from arguing, after the facts have been found, that, in terms of the TUPE Regulations, Regulation 8(1) and (2), “the transfer or a reason connected with it [was] the reason or principal reason for his dismissal” and that “an economic … reason entailing changes in the workforce of … the transferee” was not “the reason or principal reason for dismissing the employee.”

I readily accept that if, the TUPE Regulations stood alone, they would point powerfully to the way Ward LJ has put the relevant question in paragraph [59] of his judgment, namely, whose thought process is the subject of the analysis of the reasons for the dismissal. If the TUPE Regulations stood alone, it would be hard to resist the conclusiveness of the finding that the administrator had no alternative but to dismiss the employees in view of the fact that there was no cash available to pay them.

But the TUPE Regulations do not stand alone and it is common ground that, particularly in the light of Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 A.C. 546, they have to be interpreted to be in conformity with Article 4(1) of Council Directive 77/187/EEC, which is more neutrally phrased in talking of “dismissals that may take place for economic … reasons.”

Except to the extent that they were quoted in Litster, this court was not taken on this appeal to any of the many rulings of the European Court on the Directive. It seems to me that they support a more liberal interpretation of Regulation 8, and lead me to the conclusion that it would be relevant if, as alleged, Mr Smith stage-managed the administration and used the administrator as his unwitting tool to regain the business without having the liability to pay the strikers.

In Case 105/84 Foreningen af Arbejdsledere i Danmark v A/S Danmols Inventar [1985] E.C.R. 2639, Advocate General Sir Gordon Slynn spoke (at 2641) of a dismissal “based on the transfer” giving rise to the rights of the employee, and the Court spoke of “dismissals solely motivated by the transfer” (at [15]) being the subject of protection. In Case 101/87 Bork (P.) International A/S v Foreningen af Arbejdsledere i Danmark [1988] ECR 3057 the Court emphasised (at para [18]), in a reference to the Court involving dismissal prior to transfer, that it was necessary to take into consideration “the objective circumstances in which the dismissal took place …” In Case C-319/94 Dethier Equipement SAv Dassy and Sovam Sprl [1998] ECR I-1063 Advocate General Lenz accepted that the fact that a dismissal by a liquidator of the transferor might be for organisational reasons and not by reason of the transfer, but all objective circumstances relating to the dismissal must be taken into account: at 1077.

It seems to me that the approach to the Directive taken in the rulings of the European Court and the opinions of the Advocates General do not shut out the argument which the respondents make in this case, namely that the national court should not look solely at the motives of the legal entity which in law effects the dismissal. I do not say that they are bound to win if they can show stage-management by Mr Smith. What I do say is that this is not a proper case for their claim to be, in effect, struck out on a point which has not been raised below and which has not been the subject of adequate findings of fact. It is a point which is of sufficient general importance to justify the further findings of fact which the EAT thought necessary, perhaps followed, at the appropriate stage, by a reference to the European Court.

I would therefore dismiss the appeal.

I agree with Lord Justice Ward that the appeal should be allowed and the decision of the Shrewsbury tribunal restored. Had Lord Justice Lawrence Collins not disagreed, I would probably have been content simply to agree with Lord Justice Ward’s reasoning. As, however, I find myself with the casting vote, I add some observations of my own. The issue raised by the appeal is a short one arising under regulation 8 of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”).

On 7 August 2003, on a petition presented by Craig Smith, the sole director of Friction, the High Court appointed Mr Rutherford and Mr Moran as joint administrators of Friction. Friction was a wholly-owned subsidiary of Ferotec Limited and was insolvent. The Rule 2.2 report prepared by the intended administrators estimated its deficiency as regards unsecured creditors at £1.406m on an administration and at £2.002m on liquidation.

The joint administrators were licensed insolvency practitioners. The order had the immediate effect of ousting Friction’s board (meaning Mr Smith) from the management of Friction and conferring the power of management exclusively on the administrators. It also contained the usual provision enabling any act in the administration to be done by either or both of them. The acts now in question were performed by Mr Rutherford. On 7 August, following the making of the order, he went to Friction’s premises and dismissed the half dozen or so employees who were there (the annual shutdown had just started and so most were away) and on 8 August he wrote letters to all the employees, of whom there were 93, confirming their dismissal as from 7 August. He informed them that they had been made compulsorily redundant but that Friction was unable to pay anything due for wages, holiday pay, redundancy and notice pay. He advised them that their claims fell to be paid under the insolvency provisions of the Employment Rights Act 1996, which shift to the Secretary of State an insolvent employer’s liabilities for certain debts incurred to employees. The likelihood that the administrators would so dismiss all the employees was forecast in the Rule 2.2 report:

“7.1

If an Administration Order was made in respect of the Company, there would not be sufficient funds to permit it to continue to trade, especially in the light of the capital expenditure referred to at the end of para 2.4. In the circumstances the Administrators will almost certainly dismiss the majority of the staff immediately, retaining 3 or 4 staff to update the books and records and liaise with customers during the initial term of the Administration. The Administrators would then negotiate with interested parties in an attempt to secure better realisations for Creditors. It is anticipated that a sale can be achieved during the traditional August shutdown period.”

The essence of the facts that the Shrewsbury tribunal made, or which were conceded, relating to the dismissals and the subsequent transfer of Friction’s undertaking was as follows. First, as the tribunal repeated more than once, Mr Rutherford made the dismissal decision exclusively on justifiable economic grounds, namely that Friction had no money in the bank with which to pay the employees. He acted independently and properly in making the decisions he did in the administration, in accordance with his duties as an administrator. In particular, he engaged in no collusion with Mr Smith. The dismissal decision was not made so as to enable him thereafter to transfer Friction’s undertaking (whether to a Smith or any other company) free of the employment contracts of Friction’s employees. At the time of the dismissals he had not identified the future transferees of Friction’s business, nor was there even any certainty that a sale of it would be achieved.

Second, on 12 August Mr Rutherford circulated financial information about Friction to nine interested parties (including parties with no connection to Mr Smith) and sought their best offers for the company’s assets and business by 10am on 15 August. Third, on 15 August the administrators issued a press release announcing that: (a) they had sold certain raw materials and work in progress to TBA Textiles Limited (which was found by the Abergele tribunal not to have been a transferee of Friction’s undertaking and so there is no need to refer to it further); (b) they had sold Friction’s plant and machinery to Realty; and (c) they had accepted an offer from a new company, Dynamex, to take over the assets comprising Friction’s production line, that transfer being subject to a legal charge which exceeded the value of the assets transferred. The administrators were apparently unaware that Dynamex had not yet been incorporated (that happened 11 days later), and that they were in fact dealing with one of its promoters, Mark Jones. As from 18 August those promoters carried on the business formerly carried on by Friction, and when Dynamex was incorporated on 26 August it carried on the business itself, with Mark Jones as managing director. Realty leased to Dynamex the parts and machinery it had acquired, as well as the premises formerly occupied by Friction. Some 60 of Friction’s dismissed employees were re-employed by Dynamex and given new contracts of employment. Mr Smith had played a part in the preparation by Mark Jones of Dynamex’s business plan, he was a consultant to Dynamex, at some point he lent it about £150,000 and later he purchased a 60% shareholding in it. He can, therefore, be assumed for present purposes to have had a close connection with Dynamex.

The outcome of the events of August 2003 was thus that (i) immediately before the commencement of the administration Mr Smith controlled Friction; (ii) within two weeks of the making of the administration order, Realty (a Smith company) had acquired parts of Friction’s undertaking; and Mr Smith had an apparently close association with Dynamex, that had acquired another part; and (iii) Realty and Dynamex claimed to have acquired Friction’s undertaking free of the burden of the employment contracts of Friction’s dismissed employees and the financial liabilities incurred towards them.

The Abergele tribunal had found that the transfers by Mr Rutherford to Dynamex and Realty were transfers to them jointly of Friction’s undertaking and so were a “relevant transfer” for the purposes of TUPE. The combined effect of regulations 5(1) and (3) of TUPE is, subject to certain exceptions, that the employment contracts of certain employees in the transferred undertaking “have effect after the transfer as if originally made between the person so employed and the transferee.” That provision applies to each person employed in the undertaking “immediately before the transfer”. Those are the key words of regulation 5(3) but, following the decision of the House of Lords in Litster and Others v. Forth Dry Dock & Engineering Co. Ltd. (in Receivership) and Another [1990] 1 AC 546, the quoted words must be read as if they continued “or would have been so employed if he had not been unfairly dismissed in the circumstances described by Regulation 8(1)”. Regulation 8(1) and (2) provide, so far as material:

“8.

Dismissal of employee because of relevant transfer

(1)

Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part V of the 1978 Act and Articles 20 to 41 of the 1976 Order (unfair dismissal) as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal.

(2)

Where an economic, technical or organisational reason entailing changes in the workforce of either the transferor or the transferee before or after a relevant transfer is the reason or principal reason for dismissing an employee –

(a)

paragraph (1) above shall not apply to his dismissal; …”

The relevant question of fact for the Shrewsbury tribunal was whether the employees of Friction who were dismissed on 7 and 8 August 2003 were employed by Friction “immediately before the transfer” that took place at least a week later. The ordinary sense of the quoted words would invite a negative answer. But the Litster gloss excluded that simple answer in this case and required the tribunal to find whether (i) the employees were dismissed for a transfer-related reason within the meaning of regulation 8(1); or (ii) whether they were dismissed for an “economic, technical or organisational” reason within the meaning of regulation 8(2). If they were dismissed for a transfer-related reason, their dismissals would be unfair and their contracts of employment would be caught by regulation 5(1) and treated as made with Dynamex and/or Realty. But if they were dismissed for an economic reason, regulation 8(2) would apply, regulation 8(1) would not, and there would be no question of the dismissed employees’ contracts being so caught and treated. A finding that the dismissals were for an economic reason therefore foreclosed any argument by the employees, the union and the Secretary of State that there had been a TUPE transfer of the employees’ contracts to the transferees. That is what the Shrewsbury tribunal found. Their conclusion was that:

“17.

… the Tribunal is satisfied that the reason or principal reason for the dismissal of all of the employees with effect from 7 August 2003 was an economic one and Regulation 8(1) does not apply. Moreover it was not for a reason connected with a transfer. In those circumstances the additional words added to Regulation 5(3) by Lord Oliver in the Litster case do not apply. It therefore follows that the claimants in these cases were not employed by [Friction] immediately before the transfer and liability for the claims made by the claimants’ [sic] remains with [Friction]. As it is ‘insolvent’ it rests with the Secretary of State as statutory guarantor for the relevant liabilities.”

In the light of the findings and concessions as to Mr Rutherford’s reasons for the dismissal of the Friction employees on 7 and 8 August, and as to his conduct of the administration, it is not surprising that the tribunal came to that conclusion. But the Employment Appeal Tribunal (“the EAT”) set their decision aside as insufficiently reasoned and remitted the case for a re-hearing before a differently constituted tribunal. At [35] of their judgment, they identified the question of law central to the issue before them, and now before us, as follows:

“35.

The question which has troubled us in this connection is, whose reasons are we concerned with? The dismissals were effected by Mr Rutherford as administrator of [Friction]; he was not, it is common ground, in collusion with Mr Smith (cf the collusion found as fact in Litster between the receivers and the transferee). His stated reason, accepted by the Employment Tribunal, was purely economic; the business had no assets out of which to pay the wages. In these circumstances, is it relevant for the Employment Tribunal to consider whether or not events were stage-managed by Mr Smith, even if the Appellants’ case was accepted?”

It is unfortunate that, having posed that question, the EAT omitted to answer it. But the Shrewsbury tribunal had. They said:

“11.

[Counsel] further submits that the timing and order of events were stage managed in order to bypass the operation of the TUPE Regulations except that the administrator, Mr Rutherford, may have been an unwitting tool of Mr Smith’s machinations. As far as that is concerned the Tribunal, as indeed was accepted by all of the representatives at the hearing, finds that there was no collusion whatsoever between the administrator, Mr Rutherford, and either [Dynamex] or Mr Craig Smith. It was accepted that Mr Rutherford carried out the correct procedures in connection with his duties as administrator. He thought it right, proper and necessary to dismiss all of the employees with effect from 7 August 2003, particularly in view of the fact there was no cash available to pay wages to employees after 18 August 2003 insofar as hourly paid workers were concerned and also there was no money to pay monthly paid staff who had only been paid up until 31 July 2003. The Tribunal, in particular, does not accept that it is a reasonable inference that the transfer was pre-planned and that it was clear to Mr Smith before he petitioned for the Administration Order that there would be a transfer to Mr Mark Jones.”

The tribunal was, as I read that passage, there saying that the relevant decision was that of the administrators, and that (acting by Mr Rutherford) they made the dismissal decisions properly and independently. There was no collusion with Mr Smith and the transfer of Friction’s undertaking to Realty and Dynamex was not pre-planned. It was implicit in their findings that it was irrelevant to the determination of the factual questions arising under regulation 8(1) and (2) to do any more than to identify the administrators’ reasons for the dismissal decision. That is because they were the decision makers. If that view of the law was correct, there would be no basis for the EAT’s remission of the matter for a re-hearing. That is because the tribunal had made unambiguous findings of fact in answer to the relevant question.

That is the essence of Mr Hand’s submission on this appeal. It is basic, he said, that in ascertaining the reason, or principal reason, for the dismissal of an employee (including in the context of regulations 8(1) and (2)) it is the employer’s reasons that have to be ascertained. It is the employer who effects the dismissal and it is his reasons, and his alone, that are relevant. The employer here was Friction, which was in the control of Mr Smith down to the making of the administration order. But upon the making of that order the powers of management were transferred to the joint administrators exclusively, who acted as agents for Friction, and it was they (by Mr Rutherford) who then effected the dismissals. The relevant question was, therefore, as to his reasons for effecting them, and the Shrewsbury tribunal made unambiguous findings that they were economic ones and that both that decision and also that relating to the subsequent transfer to Realty and Dynamex were made without collusion with Mr Smith. Those findings, said Mr Hand, spelt the end of the respondents’ case. In particular, it mattered not that Mr Smith may have foreseen the outcome of the administration order for which he petitioned, or that it was his intention, expectation or stratagem that that would be the outcome. Those considerations were neither here nor there. He was not the decision maker, he could not control the decisions that the administrators made, nor did he. The decisions were those of the administrators alone, who had their own reasons for making them.

Those submissions appear to me to be unanswerable. Mr Ralls rightly emphasised that the question before the Shrewsbury tribunal was one that was fact-driven, that the tribunal had to consider all relevant facts and to be astute to detect the operation of any device directed at a circumnavigation of the protection that TUPE intended to be afforded to the employees of a transferred undertaking. I entirely agree with all of that and those considerations required the tribunal to consider with care whether Mr Rutherford’s claimed reasons for the relevant decisions were the true reasons and were the wholly independent reasons that he asserted them to be; and, in particular, whether there was any basis for a conclusion that they reflected the fruit of an arrangement or understanding with Mr Smith. The tribunal had, in short, to ascertain the real reasons for the administrators’ decisions and had to do so by considering all the evidence before them. There is, in my judgment, no basis for any conclusion that they did other than just that. Their conclusion on the factual question was as I have summarised.

That being so I do not consider that there is anything in the respondents’ case. Mr Ralls did not challenge the tribunal’s findings as to Mr Rutherford’s reasons for his decisions or as to his independence and professional propriety in the decision-making process. The respondents’ argument amounted to the proposition that, if it could be proved that Mr Smith’s stratagem from the outset was that the outcome of the administration should be as it turned out to be, so that Mr Rutherford could fairly be regarded as having conducted the administration as Mr Smith’s “unwitting tool”, then that was enough to fix the administrators with Mr Smith’s intentions, namely that the dismissals were a necessary preliminary to a transfer to Realty and Dynamex so that they could fairly be regarded as transfer-related.

In my judgment that argument cannot and does not work. At the time of the dismissal decision the directing mind and will of Friction was that of Mr Rutherford alone. Mr Smith had no voice in that decision or otherwise in the conduct of the administration. Even assuming that Mr Rutherford knew or guessed what his stratagem was, it is impossible according to conventional principles of attribution in company law to attribute that stratagem to Mr Rutherford and thereby supplant his reason for doing what he did (which was not transfer-related) by Mr Smith’s stratagem in that regard (which may have been).

Mr Ralls’s submissions to the contrary effect also led to what appears to me to be something of an absurdity. He recognised the possibility that, since the administrators were not in cahoots with Mr Smith, they might have transferred Friction’s undertaking to a purchaser unconnected with him. In that event, he conceded that the Smith stratagem would not have worked and that it thus could not be said that the reason for the prior dismissals was transfer-related: the conclusion that it was transfer-related would apparently only arise if the stratagem worked. On that basis it would, it seems to me, be impossible to have identified as at, say, 9 August whether or not the reason for the prior dismissals was transfer-related: on the respondents’ case it would all depend on the identity of the (if any) transferee of Friction’s undertaking, who at that date was unknown. Once it was known, the one solid piece of evidence as to the reason for the dismissals, namely that of the agent who made the decision, must apparently be ignored as irrelevant if the transfer were to a Smith company; but can apparently be taken into account if the transfer is to company unconnected to Mr Smith. That makes no sense.

In my judgment, the Shrewsbury tribunal’s findings pointed to an inevitable decision that Friction’s dismissed employees were not employed by Friction immediately before the relevant transfer. With respect to the different views of Lawrence Collins LJ, whilst I accept that the TUPE Regulations must be interpreted in conformity with Article 4(1) of the Council Directive, I do not accept that that exercise does, can or might require any different conclusion. I consider the EAT was wrong to set the Shrewsbury tribunal’s decision aside. I would allow the appeal and restore the decision of that tribunal.