British Telecommunications Plc v Royal Mail Group Ltd

This appeal arises out of a claim for indemnity made by the appellant, British Telecommunications Plc ("BT"), against the respondent, Royal Mail Group Limited ("RMG"), in proceedings against BT by the widow of a victim of mesophelioma, Gordon Hilton. Mr Hilton had been employed by the Post Office, RMG's predecessor, between 1961 and 1970, and had during those years been exposed to airborne asbestos fibre.

I deliberately say “been employed by” rather than “worked for” the Post Office because there was in the court below an issue as to whether Crown service, which was arguably what Mr Hilton was engaged in, was contractual employment. Edwards-Stuart J, whose judgment is reported at [2010] EWHC 8 QB, held that it was, and the issue is not revived before us. What has been canvassed before us is whether an employer's liability for negligently causing injury to an employee is contractual or tortious, or both, and to this I will return.

The crucial aspect of Mr Hilton's employment with the Post Office is that it had terminated before 1 October 1981. This was the date set by the Telecommunications Act 1981 for the transfer of the Post Office's telecommunications functions to the newly created corporation, BT. At that date the Post Office was liable to Mr Hilton in damages for breach of its duty as an employer to take reasonable care for his safety; but Mr Hilton was no longer in the Post Office's employment.

The Act made what appears to be simple and explicit provision for such cases. By Section 10(1) it required the Post Office to separate its telecommunication and data processing services from the rest of its business. By Section 10(2) it then provided:

“(2)

Subject to the following provisions of this section, on the appointed day there shall be transferred from the Post Office to, and by virtue of this Act vested in, the Corporation all the property, rights and liabilities which, immediately before that day, were comprised in the part of the Post Office’s undertaking mentioned in subsection (1).”

The section went on to provide in subsections (3) to (6) for the two bodies by agreement to exempt or add any property, rights or liabilities provided that this did not affect any contract of employment without the employee's consent. It then provided in subsection (7):

Schedule 2 is entitled "Provisions as to transfers of property rights and liabilities". The first two paragraphs, cross-headed “Allocation of property, rights and liabilities”, are expressly disapplied to contracts of employment. Paragraph 3 is cross-headed “Rights and liabilities under contract of employment”. It reads:

Pausing here (and it is the appellant's case that there is no warrant for going any further), the clear meaning is that the Post Office's liability for Mr Hilton's illness, and others similarly placed, was not transferred on 1 October 1981 but remained with what was the Post Office and is now RMG. The judge agreed; the default position, as he described it (viz the position where no separate agreement had been made under Section 10(3) to (6)), was "that employees should be transferred into the organisation in the business they had been working on the day before transfer”. More accurately, I would respectfully suggest it was that the Post Office's rights and liabilities under its telecommunication and employees’ contracts should be transferred to BT only if those contracts were still in being on 30 September 1981. If so, Mr Hilton's was not such a contract, and the Post Office's liability to him, whether actual or contingent, remained where it was.

The judge then said this:

“34.

This seems to me to be a natural and sensible reading of paragraphs 1 to 3 of Schedule 2. However, that does not necessarily mean that it is the correct reading.”

The judge then set out three reasons which had been advanced by Michael Kent QC (and which he accepted) for revising his initial conclusion. Having done so, he considered a fallback argument advanced by Andrew Hogarth QC for BT that a contract which had ceased to exist could not be said to be "comprised in part of the Post Office's undertaking" and rejected it for the same reason as he had accepted Mr Kent's third argument on the main issue.

I turn first of all to the three issues which led the judge to depart from what he recognised was the natural and sensible meaning of the statute and to conclude:

“42.

In my judgment section 10(2) of the Act, if read according to both its natural meaning and with a purposive approach refers to all liabilities in respect of former employees of the Post Office whose employment had ceased prior to 30 September 1981. Paragraph 3 of Schedule 2 to the Act is, in my view, no more than part of the mechanism for defining the circumstances in which existing employees will be transferred to BT in the absence of any specific agreement to the contrary. It does not ‘trump’ the natural meaning of the words in section 10(2).”

On the first issue the judge said this:

“35.

Mr Hogarth submits that because section 10(2) of the act is expressly stated to be subject to Schedule 2, the provisions of the latter must prevail over the former. Since the wording of paragraph 3 of Schedule 2 is clear and unambiguous, it must have the effect that in respect of employees the only liabilities transferred are those in respect of employees who were in the employment of the Post Office on 30 September 1981.

36.

The difficulty with this argument is that it has the consequence that the words ‘all the … liabilities’ in section 10(2) of the Act do not mean all the liabilities, but mean all the liabilities except for liabilities in respect of employees of the Post Office whose employment had ceased before 30 September 1981. One might except that such a major limitation, if that was what was intended, would be expressed in clearer words and might be found within the main body of the Act and not found in a sub-paragraph in a schedule to it. However, that said, I accept of course that a schedule is just as much a part of a statute as its main body.”

Next the judge held:

“37.

In my view, a further difficulty facing Mr Hogarth’s argument is that the final words of paragraph 3(1) of Schedule 2 show that it is dealing with the situation where there is a transfer of all property, rights and liabilities comprised in a specified part of the transferor’s undertaking and that there are associated contracts of employment subsisting at the time of the transfer and that it is not referring to those cases where the employment has ceased.”

Lastly, an issue arose during argument about the possible bearing of section 3 which deals with pensions. The judge said this:

“38.

A point emerged during the course of the argument that, in my view, throws strong light on the meaning of section 10. Section 33 of the Act is concerned with pensions. In the ordinary course of events an entitlement to a pension, if there is one, is a right that arises under a contract of employment. However, the responsibility for making the pension payments will usually rest with trustees who are a separate and distinct entity from the employer. Whether or not the employee will have a right of action to enforce his pension entitlement directly against the trustees will depend on the circumstances. However, usually his primary right would be against his employer who, in turn, will then have a right against the trustees of the pension fund to compel specific performance of the obligations to pay the pension to the employee.

39.

Such documents as I have seen in this case suggest that similar arrangements existed between employees of the Post Office, the Post Office and the trustees of the Post Office’s pension fund. For example, the Post Office Staff Superannuation Scheme booklet, at page 47 of the Core Bundle, explains the entitlement of members of the Scheme to a pension and how that pension is to be calculated by reference to years of reckonable service.

[…]

41.

I am unable to find, and counsel could not identify, any provision of the Act that could have provided for the transfer of these pension rights apart from section 10(2). If this is correct, as I consider it must be, then this a powerful indication that section 10(2) does not have the limited effect for which Mr Hogarth contends.”

Later the judge said:

“44.

But even if section 33 did not exist, I would reject this argument on the ground that the language is perfectly apt to include liabilities arising out of contracts that have come to an end. During the course of argument Mr Hogarth accepted, realistically and inevitably it seemed to me, that a liability to a member of the public who had tripped over a defective telecommunications manhole cover many months before the transfer would be transferred to BT by section 10(2). From this it must follow that such a liability is a liability ‘comprised in part of the Post Office’s undertaking’. So if a liability is capable of being transferred which does not arise out of a contract at all, I cannot see why a liability arising under a contract, whether subsisting or not, is not also a liability ‘comprised in part of the Post Office’s understanding’.”

I will return to these conclusions of the judge after considering the arguments deployed by Mr Kent today in support of them.

Impressing and elegantly presented as these were, they made it unnecessary for us to hear Mr Hogarth in support of BT's appeal, because in our view, for reasons to which I now turn, they were not capable of displacing the plain meaning of the statute or of qualifying its clear language.

Mr Kent's argument, to which I hope I do justice, is broadly this. At the heart of his submissions Mr Kent put the proposition that schedule 2 of paragraph 3 is concerned only with existing employees -- that is to say, those in employment immediately before the transfer date -- and that its purpose is to protect the position of existing employees by ensuring that their contracts of employment are transferred only if they were employed in the part of the undertaking being transferred. He drew a distinction first between a transfer and the Section 10(2) of all the property rights and liabilities comprised in the relevant part of the undertaking, which he described as a package transfer; and secondly, a transfer of property rights and liabilities specified in an agreement pursuant to Section 10(4), which he described as a specific transfer. Paragraphs 1 to 3 of Schedule 2 apply only to a package transfer; they provide rules for the distribution in such a case of property rights and liabilities which do not fall neatly into either the postal or the telecommunications part of the undertaking but relate to elements with a mixed use or purpose, such as shared premises. In general, there can be a division or apportionment as provided for in paragraphs 1 and 2; that clearly cannot be done, however, for employees for whom separate provision is made in paragraph 3. The effect of paragraph 3.2 is that an employee's contract of employment is transferred -- or, more accurately, the rights and liabilities under his contract of employment are transferred -- if he was working in the transfer part of the undertaking immediately before the transfer date, but otherwise he remains in the employment of the Post Office.

An example might be an engineer, who is engaged mainly in servicing letter-sorting equipment or postal delivery vans, but who worked from a depot in which most engineers serviced telecommunications equipment. But for paragraph 3.2, he might find his contract of employment transferred because it was comprised in the part of the undertaking being transferred. Paragraph 3.2 shows that, because he was not in fact employed in that part of the undertaking, his contract of employment is not transferred.

Mr Kent sought to draw support from that construction at paragraph 3 from the wording of Section 10(5), whereby no agreement under Section 10(3) or 4 shall have effect in relation to the rights and liabilities under a contract of employment unless the employee concerned is a party to the agreement. He submitted that the purpose of Section 10(5) is to allow existing employees a say in whether they are transferred or not transferred pursuant to agreements that alter the position otherwise arising under Section 10(2). If Section 10(5) refers only to existing employees, it reinforces the argument for reading the same expressions in para 3 of Schedule 2 as referring only to existing employees.

Thus, on the construction put forward by Mr Kent paragraph 3 of Schedule 2 has nothing to do with the contracts of employment of former employees. The liabilities under those contracts are governed solely by the general terms of Section 10(2) and, if comprised within the telecommunications part of the undertaking, are transferred with that part of the undertaking. It is said, moreover, that there is no reason why the draftsman should have wished to carve out an exception to Section 10(2) in respect of employees who retired before the transfer date and that different and more explicit language would have been used if that had been the statutory intention.

Mr Kent also sought to draw support from an earlier and similarly framed statute, the Transport Act 1968, and from the pensions provision in Section 33 of the 1981 Act. I will come to each of these in a moment.

In addition Mr Kent contended, placing himself on the principle of construction which seeks to avoid inconvenient outcome (see Halsbury’s Laws 4^th Ed reissue, vol 44(1), para 1479), that the appellant's reading of the Act will require or permit claims in tort and in contract for the same injury to be made against two different defendants. The argument for inconvenience, which I will take first, depends chiefly on there being material distinction between an employer's liability to its employees in tort and in contract. This in turn depends upon another distinction, the distinction between liability arising "under" the contract of employment and liability arising "from or in connection with" such a contract. In Bernadone v Lancashire County Council [2001] ICR 197, Peter Gibson LJ expressed the view at paragraph 37 in relation to liability for injury sustained at work that:

The reason for this dictum was that all three forms of words had been used in the alternative with regulations made, as it happens, in 1981, the same year as the Act which we are construing. No doubt at the drafter of the 1981 Act Peter Gibson, LJ's dictum’s to his disposal, he would have amplified the word “under” in paragraph 3.2 out of caution, just as the drafter of the regulations had done. In my judgment it would not have been necessary. With all respect to Peter Gibson LJ's cautious approach, I, for my part, would hold that the duty of an employer to take due care for the safety of an employee, whether contractual or tortious, can arise only where there is a contract of employment between them. In a simple sense, any liability for negligence is a liability under the contract. Beyond this, however, I do not accept that there is any daylight between the two versions or forms of liability. The editors of Halsbury’s Laws, 4th edition, issue volume 16(1)(a) put it at paragraph 32:

In other words, the tortious and the contractual duties which arise by virtue of a contract of employment are coextensive. It falls, in my judgment, that Mr Kent's argument for inconvenience that an injured former employee on Mr Hogarth's construction might claim against RMG in contract and against BT in tort for the same injury is illusory. On a single set of facts a single claim will lie, wherever the statute directs it: the question is where that is.

The argument from the wording of the Transport Act 1968 sheds an interesting light on the Parliamentary drafter's use and in-house precedent but do not seem to me to help us. If the language of the 1981 Act was identical or even merely similar, the implication will be that the two statutes are intended to produce similar outcomes, but what those outcomes are cannot be determined by reading across from one to the other unless (and even this is debatable) the earlier statute contains explanatory material which sheds real light on the meaning of the later one. That is not this case.

As to the statutory pension provision, in addition to what I shall say in a moment about the judge's approach to it, Section 33 appears to me of marginal (if any) relevance to the issue before us. The fact that BT is made responsible for paying the pensions of former Post Office employees tells us little or nothing about what is intended to be the situation with personal injury claims made by former Post Office employees. There is nothing odd or anomalous, for example, in Mr Hilton's having drawn a pension from BT when he eventually retired but looking to RMG for damages for mesophilia caused by his former employment with them developed; nor, with respect, do I derive ay help from the provisions of Section 4 of the 1981 Act on which Mr Kent also relied but which relate to a distinct power in BT to make schemes for the transfer of rights and liabilities.

For the rest, it seems to me that Mr Kent's ingenious argument for departing from the plain meaning of Section 10 of Schedule 2, paragraph 3 falls well short of what is required if such an exercise is to succeed. It seems to me that the Parliamentary drafter in 1981, as previously in 1968, used the simple language for a simple purpose -- which is not obviously unreasonable or even inconvenient -- to exclude from the transfer of liabilities to BT any liability to a former Post Office employee whose contract has ceased by the time the transfer takes place. No doubt other arrangements could have been made a back bencher might even have anticipated Mr Kent by asking the Minister what the point was of making such an exception; but nothing in either the wording or the policy of the statute is capable, in my view, of having the effect of restricting paragraph 3 to contracts which are still subsisting at the date of the transfer. Indeed, that seems to me practically the converse of what the paragraph explicitly lays down.

The undoubted fact that Section 10(5), which requires an employee's consent to any exceptional arrangement, can relate only to existing employees affords no logical reason why the same should be true of paragraph 3 of Schedule 2. The insuperable difficulty, as it seems to me, in Mr Kent's case is that to read paragraph 3 as applying only to employees who were working in the transfer part of the Post Office undertaking immediately before the date of transfer is not simply to gloss or qualify but to reverse what it says and what it apparently means. If the rights and liabilities under the contract of employment to be transferred "only if immediately before the transfer date the employee concerned was employed" in the transfer part of the Post Office, then, if like Mr Hilton, the employee was not so employed immediately before the transfer date, the logical corollary is that the incidents of his contract of employment are to remain with the Post Office. It may well be that paragraph 3 has relevance to the situation postulated by Mr Kent of an engineer whose work is peripheral to the telecommunications function and who needs to be hived from the general transfer, but I cannot accept that this and similar situations are the sole objective of the provision. In terms and in effect it goes much wider.

Let me return lastly to the judge's reasons, which I have set out earlier in this judgment, for accepting Mr Kent's argument. The short answer to the judge's first point, as it seems to me, is that the draftsman has seen it coming and has dealt with it by opening Section 10(2) with the words "subject to the following provisions of this section..." Those provisions include subsection (7) which begins "Schedule 2 shall apply to any transfer under subsection (2)..." In other words, the Act explicitly introduces Schedule has a qualification on the generality of the transfer. By doing so, it deliberately, and for obvious reasons, separates contracts of employment from other sources of rights and liabilities and from property which is to be transferred. Putting such provisions in a Schedule is no more than an orderly and manageable way in achieving a straightforward legislative purpose.

As to the second issue, it seems to me, with respect, that the design and wording of the two subparagraphs are quite clear. The first subparagraph is, as the judge says, dealing with the situation where there was a general transfer, which includes contracts of employment; but the precise purpose of the second subparagraph is to recognise what the judge finds problematical and to separate existing from defunct contracts of employment, transferring only the former. Far from dealing only with subsisting contracts and ignoring defunct ones, the paragraph carefully provides for both.

As to the suggested relevance of the provision for pensions, the material part of Section 33 is the provision that the Section is to apply to:

In my judgment, Section 33 is an uncertain and remote aid to the construction of Section 10 and its pendant provision in paragraph 3 of Schedule 2, not only for the reasons I gave earlier but because there was only sketchy evidence about the nature of the Post Office's pension provision. As the judge recognised, the obligation to pay pension ordinarily rests with trustees; it may or may not be because the judge also said that the primary right lies against the employer with the remedy over against the trustees. But the fact is that in the absence of firm evidence that all Post Office pension provision took a particular form and that that form would have been known to the legislature. Such speculation cannot form the predicate of a finding of law, especially in a case which is not about pensions but about distinct employment rights and liabilities.

The provisions of Section 33 are, in my respectful view, of no real assistance in construing the provisions and transfer of liability to employees.

This being so, there is no need to address Mr Hogarth's fallback argument. It is not needed as his primary argument is correct. Liability for Mr Hilton's illness remained with the Post Office on transfer of its telecommunications undertaking because it arose under the contract of employment with the Post Office which had ceased to exist before the transfer date. That is all that Section 10 and Schedule 2 paragraph 3 require.

The court understands that the sums affected by this satellite litigation are likely to be far larger than Parliament could have anticipated when it made the material provision, but that cannot alter the plain meaning of the legislation. I would accordingly allow this appeal and grant BT the declaration it seeks that material liability was not transferred to it in October 1991.

I agree. I have probably found greater force in Mr Kent's submissions than Sedley LJ has done. Even so, I am not persuaded that there is sufficient in them to displace the plain meaning of paragraph 3 of Schedule 2 on the natural construction of that provision, and for the reasons given by Sedley LJ I too would allow the appeal and grant the declaration sought.

I also agree.