Swissport (UK) Ltd v Aer Lingus Ltd

This is an appeal from a decision of Deputy Master Hoffmann of 15 September 2006. He gave summary judgment for the claimants (“Swissport”) against the defendants (“Aer Lingus”) in the sum of £998,849.32, inclusive of interest, in respect of charges for ground handling services performed for Aer Lingus at Heathrow Airport. He ordered that there be payment out of court to Swissport in the sum of £750,000 and accrued interest. The legal costs were to be assessed in detail if not agreed and Aer Lingus were required to pay £25,000 on account of those costs.

I understand that the transcript of the Deputy Master’s judgment was not available until 17 October 2006. There were also certain interim applications for stays of execution and for permission to appeal, which I need not describe.

I should explain or mention certain matters at the outset.

Aer Lingus contend that summary judgment is not appropriate because they have a counterclaim whose value exceeds the ground handling charges, alternatively, a set-off. The value of that counterclaim or set-off is said to be affected by the outcome of the employment proceedings.

The background to this case is described in the transcript of the Deputy Master’s judgment. Further background is apparent from the decision of the Employment Tribunal for London South of 8 August 2006. For present purposes I think I can summarise the facts as follows.

Aer Lingus have a large business at Heathrow Airport, Terminal 1. Their aircraft fly in or out of there around 22 times a day, carrying 1.2 million passengers a year. The ability of Aer Lingus to satisfy any relevant claim is not in question.

Formerly, Aer Lingus employed their own staff to provide ground handling services for its flights into and out of Heathrow Airport. But in 1999 they decided to outsource. Thus by a contract of 30 November 1999 Aer Lingus transferred their Heathrow ground handling business to Swissport and by a contract of the same date Swissport agreed to provide ground handling services for Aer Lingus at a fixed cost per flight. The ground handling agreement was to be in force until 30 November 2009.

It was pursuant to those contractual arrangements that Aer Lingus incurred the ground handling charges that the Deputy Master held to be due.

The business transfer agreement had to make provision about the transfer of employees and this was addressed by Clause 10. I shall revert to that later.

Matters continued in that vein until 2004, when Swissport tried to re-negotiate the contract: they said they were losing money, mainly because of high labour costs. Aer Lingus refused to budge. The contract was at a fixed price per flight, it still had about 5 years to run and, so far as Aer Lingus were concerned, the real commercial benefits had yet to accrue. Eventually Swissport ceased trading and went into administration. Specifically:-

Although Aer Lingus were aware that Swissport were threatening to cease trading, they nevertheless had to react with considerable energy in order to plug the gap. Aer Lingus managed to do so. They flew in skeleton staff from Dublin and they went to other contractors to get the services of extra staff. They kept going. Apparently they did not miss a flight.

It may seem obvious that Swissport’s breach of contract must surely have inflicted very considerable damage upon Aer Lingus: not only did Aer Lingus have to scramble around to keep their Heathrow services going but they would have had to engage extra staff or the services of outside contractors – presumably at 2004 (not 1999) rates. However, such was the efficiency of Aer Lingus (or, perhaps, the previous inefficiency of Swissport) that Aer Lingus did not suffer any damage by taking the reins into their own hands: in fact they saved money. That Aer Lingus did not suffer damage because of Swissport’s termination of the ground handling services – on the contrary, that they saved money – was evidence not contradicted. See paragraph 40 of the first witness statement of Mr Kahn and the analysis of Deputy Master Hoffmann at paragraph 6 of his judgment.

As a result of the collapse of their ground handling business at Heathrow, Swissport dismissed some 750 employees. Inevitably a considerable number of those employees found jobs with Aer Lingus or with those outside contractors that provided the ground handling services to Aer Lingus in place of Swissport. The next stage in the saga was that many of those employees, or trade unions claiming to represent them, brought claims not only against Swissport but also against Aer Lingus. They claimed that prior to 16 November 2004 there had existed an ‘undertaking’ within the meaning of TUPE (Footnote: ¹) that was in the hands of Swissport and this ‘undertaking’ or part of it had been transferred to Aer Lingus. If that point were to succeed they would go on to say that their employments came to an end as a result of the transfer of the undertaking and they would claim compensation.

Aer Lingus have defended those claims. But they say that, even so, they face a contingent liability as a result of those employment claims or for having to indemnify outside contractors against such claims.

The employment claims, or a segment of those claims, came before the Employment Tribunal for London South. The Tribunal decided to determine a preliminary point and heard evidence over 4 days. On 8 August 2006 it ruled that the claims failed at the outset. Its formal ruling was as follows:

“Prior to 16 November 2004 there did not exist an undertaking within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”) that was identifiable as being the provision of ground handling operation services by [Swissport] to [Aer Lingus] at Heathrow Airport. Accordingly, when on 16 November 2004 [Swissport] ceased to trade and [Aer Lingus] commenced the provision to itself of ground handling operations at Heathrow Airport there was no transfer of undertaking to which Regulation 3 of TUPE applied”.

The Tribunal’s judgment was directed to whether the provision of the ground handling services by Swissport for Aer Lingus at Heathrow was an ‘undertaking’ in the sense of ‘a stable economic entity’ and whether that ‘undertaking’ had been transferred to Aer Lingus on 16 November 2004. In the event that the Tribunal had decided that a transfer of an undertaking had taken place, which it did not, it would have been for a different Tribunal to determine which, if any, of the employees on behalf of whom the claims were brought had transferred to Aer Lingus pursuant to Regulation 5 of TUPE.

An appeal lay to the Employment Appeal Tribunal on a point of law. I was told that an appeal was brought and was due to commence on 18 April 2007. At the date of writing this judgment the decision has not been delivered – so far as I have been told or have been able to find out for myself by consulting the judgments database on the EAT’s website.

Mr Stuart Isaacs QC, who appeared for Aer Lingus, said that it was not for me to second-guess the EAT’s decision. Thus it was possible that the appeal might be allowed, in which case the employment claims would be allowed to proceed. That might take a long time. Of course his clients agreed with the decision under appeal; but they had to factor in the possibility that they might be wrong. Thus his clients faced a contingent liability in respect of employment claims that might amount to £6 million or, at any rate, a sum equal to the ground handling charges they incurred to Swissport. Swissport would be liable to indemnify Aer Lingus, so that it would be wrong to give summary judgment in favour of Swissport for the ground handling charges.

The 1999 business transfer agreement contained a detailed clause about the transfer of employees: Clause 10. Aer Lingus allege that Clause 10.12 makes Swissport liable to indemnify them in respect of the current employment claims.

Clause 10.12 reads as follows:

“The Purchaser [i.e. Swissport] shall indemnify and keep indemnified the Vendor [i.e. Aer Lingus] for and against all liabilities arising out of or in connection with:

10.12.1

the refusal of an Employee to transfer to the Purchaser pursuant to Regulation 5(5) of the Employment Regulations; or

10.12.2

the employment by the Purchaser on or after the Apportionment Time of any of the Employees other than on terms (excluding terms relating to occupational pension schemes except …) at least as good as those enjoyed immediately prior to the Apportionment Time or the termination of the employment of any of them on or after the Apportionment Time; or

10.12.3

any claim brought by any Employee or any trade union or worker representative in respect of an Employee or Employees arising out of any act or omission of the Purchaser on or after the Apportionment Time

except for [irrelevant]”.

‘Apportionment Time’ was defined elsewhere as midnight on 1 December 1999 and ‘Employees’ was defined to mean those persons whose names and details of employment were set out in a schedule. In 2004 there were still 71 Employees employed by Swissport who were identified in the schedule.

The Deputy Master held that Aer Lingus’ counterclaim, or its putative set-off, had no reasonable prospect of success. He did so because he held that Swissport was not bound to indemnify Aer Lingus in respect of the employment claims. He held that, on its true construction, Clause 10.12 of the business transfer agreement of 30 November 1999 did not so provide.

The Deputy Master’s conclusion is summarised in paragraph 18 of his judgment. He said:

“In my judgment, this indemnity does not apply to the 2004 circumstances. Clause 10 of the vending agreement sets out an entire scheme for the TUPE transfer of the business in 1999 and expressly sets out in clause 10.2 the adoption by the claimant of the employment contracts. The defendants give indemnities in respect of that transfer at paragraphs 10.5, 10.8 and 10.10. 10.12 is the corresponding indemnity by the claimant. In my judgment, it cannot be construed as anything other than claims which might arise in respect of the 1999 transfer, and the fact that the defendant stepped briefly into the baggage handling market in 2004 is what triggers the employment claims, not anything done under the 1999 agreement.”

Mr Stuart Isaacs QC for Aer Lingus contended that the Deputy Master’s conclusion (“it cannot be construed as anything other than claims which might arise in respect of the 1999 transfer”) rested on assertion alone. For a start, the wording was capable of covering the situation in 2004. Omitting inessential verbiage, Swissport agreed to “keep indemnified” Aer Lingus “for and against all liabilities arising out of or in connection with … any claim brought by [or on behalf of] any Employee arising out of any act or omission of” Swissport after 1 December 1999.

Mr Isaacs QC accepted that Clause 10.12 must be given a purposive construction. But he denied that its sole purpose was to provide for claims arising out of the immediate aftermath of the transfer of employments that took place in 1999. The factual matrix in 1999 was that Aer Lingus had a major operation at Heathrow Airport, representing about 20% of their business worldwide; for example, in November 1999 they had 18 or 19 flights daily. The sudden cessation of those operations at any time would have a catastrophic impact on Aer Lingus’ reputation and business. It would thus have been clearly contemplated in November 1999 that, if Swissport were at any time unilaterally to stop performing under the ground handling agreement, and irrespective of any potential claim for damages, Aer Lingus would be compelled to make alternative arrangements in order to obtain ground handling services, either by performing such services itself or by engaging an alternative provider; that the available pool of experienced and security-cleared employees to perform those services would in all probability have to include recent employees of Swissport; and that such action might (as had in the event happened) expose Aer Lingus to the risk of proceedings by former Swissport employees seeking to fix them with liability under TUPE.

Mr Christopher Harrison, who appeared for Swissport, said that there was no evidence showing that in late 1999 it would have been apparent that the available pool of experienced and security-cleared employees would probably have had to include recent employees of Swissport. That may be so, but I do not think it quite disposes of Mr Isaacs’ point. For as Mummery LJ said in Doncaster Pharmaceuticals Group Ltd v. The Bolton Pharmaceutical Company 100 Ltd [2006] EWCA Civ 661.

No doubt, security vetting for baggage handling staff at Heathrow Airport was considerably tightened after the catastrophic events of September 11, 2001. But, notoriously, there had been successful attempts to place bombs on aircraft long before that date. If there was a trial I would expect Aer Lingus to be able to prove that, already by 1999, employees who had to perform ground handling services e.g. baggage handling could not go “air-side” without displaying security credentials. We have all been to Heathrow Airport and we all know that long before November 1999 you had to pass through scanners and that staff working on the other side of Immigration prominently displayed photographic ID. It is really a matter for judicial notice. It was not to be expected that security credentials could be obtained instantaneously for workers with no previous track record, hired straight from the Job Centre. But, be that as it may, in my judgment Aer Lingus did not need to deploy evidence in order to demonstrate it to be arguable, for the purposes of summary judgment, that if Swissport ceased to provide ground handling services overnight (as they did), it would be well within the contemplation of the parties that suitable personnel would have to be found quickly and that, in practice, those persons would be likely to include numerous recent employees of Swissport.

The Deputy Master’s interpretation of Clause 10.12 may well be right. However, I am not satisfied, to the standard required for summary judgment, that it is. It is possible that a different conclusion might be arrived at in the light of the matrix of facts that existed in November 1999. If that is right, there is considerable force in Mr Isaacs’ contention that the Deputy Master’s conclusion was arrived at without taking into account that matrix of fact.

Mr Isaacs QC had a second string to his bow. He contended that, irrespective of the meaning of Clause 10.12, Swissport’s failure to provide ground handling services on 16 November 2004, and thereafter, was a breach of their contract for which Aer Lingus was entitled to claim damages. Those damages would include the loss that Aer Lingus would sustain were the employee claims to be successful. It was particularly on that ground that Warren J was persuaded to grant permission to appeal.

CPR Rule 24.2 says that the court ‘may’ give summary judgment against a defendant if it considers that the defendant has no real prospect of successfully defending the claim and that there is no other compelling reason why the case should be disposed of at trial.

Even if those two conditions are satisfied it does not follow automatically that summary judgment will be given. The word ‘may’ imports a discretion albeit one to be exercised on proper judicial grounds. If there were any doubt about that it would be resolved by the Practice Direction (24PD.5). It says that the orders that the court may make on an application for summary judgment include a conditional order, that is to say, an order that requires a party to pay a sum of money into court or to take a specified step in relation to his claim or defence on pain of it being struck out in default of compliance.

As to discretion, it happens quite often that:-

If the claimant is insolvent, giving summary judgment in his favour may produce unjust consequences. Namely, that the defendant is ordered to pay money to the claimant and the money is distributed to the claimant’s creditors, so that the defendant will never get it back in full: yet (and this is the injustice) it might be the defendant who had the larger claim all along, but it could not have been proved at the time owing to the summary nature of the proceedings. Of course he may prove it by going to trial but then it will be too late. (A similar point applies where the true value of the defendant’s cross-claim, while not larger, is nevertheless substantial.)

But, as against that, consider what would happen if the courts made it a rule never to give summary judgment in favour of an insolvent claimant, whenever the defendant might have a good cross-claim. That too would result in unjust consequences. It could put a premium on failing to pay your supplier’s invoices on time even though his charges were quite proper. It might tend to promote insolvencies which were otherwise avoidable. Or it might tend to delay liquidations, to the prejudice of innocent creditors. I find it rather hard to believe that it is the policy of modern insolvency law to encourage those results. When a business is suspected to be at risk of insolvency, powerful debtors are anyway tempted to delay payment. Indeed it is hinted on behalf of Swissport that that is exactly what Aer Lingus did in this very case.

Mr Isaacs QC submitted that if C sues D for summary judgment for charges admittedly incurred, but D shows that X has a contingent claim against D which, if successful, would entitle D to recover from C, then, if C is insolvent, there should always be permission to defend, or a stay of execution. He cited Bouyges (UK) Ltd v. Dahl-Jensen (UK) Ltd [2000] BLR 522, C.A.; Rainford House Ltd v. Cadogan [2001] All ER (D) 144; and Wimbledon Construction Co 2000 Ltd v. Vago [2005] EWHC 1086 (TCC). In my judgment those cases do not establish Mr Isaacs’ proposition, which is too wide. Those were cases about interim adjudications under special legislation about building works. Such adjudications are, in effect, interim awards of money that must be paid at once even though the decision is not final. It was the policy of Parliament to encourage prompt payment although the money might be recoupable in the end. The cases decide that if the claimant is insolvent it will ordinarily be right to grant a stay of execution, else the defendant may never recoup his money if the adjudication turns out to be wrong. I can see the justice of that conception but, in my judgment, it is not a black-letter rule of law applicable to summary judgments in general. To do full justice you have also to bear in mind the countervailing conception and I have endeavoured to outline it in paragraph 33 above.

In the present case the success of Aer Lingus’ counterclaim, regarded as a pure counterclaim, depends on an accumulation of contingencies. First, the employment claims would have to succeed. And, for that to happen, the Employment Appeals Tribunal would have to reverse the decision currently pending before it. Then the employees would have to show that in 2004 there was a transfer of employment under TUPE. Thereafter a tribunal would have to conclude that the employees lost their jobs because of that transfer of employment, and not because Swissport became insolvent. Still further, the tribunal would have to decide that the value of the claims, taken together, was substantial. Even that would not establish Aer Lingus’ counterclaim. Aer Lingus would still have to show that the amount of their loss, consequent on the success of those employment claims, exceeded the money they saved by appointing their own staff or outside contractors to provide the ground handling services. Finally, Aer Lingus would have to show that they were entitled to be compensated by Swissport, either under the indemnity created by Clause 10.12 of the 1999 ground handling contract, or at any rate under the general law of damages.

I do not say it is utterly unarguable, but I feel bound to say that, in my judgement, it is pretty unlikely that all of the above conditions would be satisfied in the end.

In that regard Mr Harrison made a telling point. The contingent value of the employment claims is alleged to be worth about £6 million. However, that is on the mistaken basis that there are some 96 claims worth about £66,500 each. But it fails to take account of the fact that most of those employees shortly got jobs with Aer Lingus, or with replacement contractors appointed by Aer Lingus. It also fails to take into account that the employees would have to give credit for any statutory redundancy payment they would have received against the value of the basic award element of any unfair dismissal claim. See the second witness statement of Neville Barry Kahn, especially paragraphs 14 to 17. Therefore, calculated Mr Harrison, the actual value of the employment claims, even if successful, is not likely to exceed about £500,000.

Now, it is not in dispute that, in the events that happened, Aer Lingus did not sustain any damage because of the collapse of Swissport’s ground handling business (excluding the putative employment claims, of course). They actually saved money by appointing staff of their own or other outside contractors. Mr Harrison’s point is that Aer Lingus have not only failed to deny the evidence that is directed to that point, they have also failed to identify the amount of the saving. The onus is on Aer Lingus if they wish to avoid summary judgment. Yet it is perfectly plausible that the amount of the saving may well have exceeded the proper contingent value of the employment claims.

Mr Harrison pointed out that under the 1999 ground handling agreement Swissport were charging Aer Lingus £1,000 per aircraft movement (£850 for some aircraft types). Suppose for the sake of illustration Aer Lingus saved £20 per flight. Multiply that by the 20 daily flights over the 5 remaining years of the contract and you get £800,000. That would exceed the estimated value of the TUPE claims. It is true that there is no evidence that Aer Lingus actually saved £20 a flight, or any other specified amount. But that is immaterial. It is not for Swissport to show how much Aer Lingus saved per flight, it is for Aer Lingus to bring the facts before the court if they wish to establish a properly arguable counterclaim or legal set-off.

That leaves one final point of law, which was not discussed in the Deputy Master’s judgment, probably because it was not much developed in the argument before him. It turns on the difference between a mere legal set-off and an insolvency set-off.

The Possible Consequences of the Liquidation

As I have said, when the Deputy Master had given his decision Swissport had not yet gone into liquidation. On about 10 November 2006, they did.

There may be a considerable difference between, on the one hand, a counterclaim or legal set-off, and, on the other hand, insolvency set-off. The difference is discussed in the speech of Lord Hoffmann in Stein v. Blake [1996] AC 243. Although that was a case of personal bankruptcy, the same principles are said to apply to the insolvent liquidation of a company, see Secretary for State for Trade v. Frid [2004] UKHL 24; see also the Insolvency Rules 1986 rule 4.90. For present purposes:-

In Secretary of State for Trade and Industry v. Frid this was further elaborated by Lord Hoffmann. He was referring to the then-existing Rule 4.90(2), which read as follows:

At paragraph 9 Lord Hoffmann added:

Referring to ‘mutual debts or other mutual dealings’, Lord Hoffmann, after citing the decision of the High Court of Australia in Gye v. McIntyre 171 CLR 609, said that ‘other dealings’ is directed not so much to the relationship between the dealings as such but to the relationship between the claims which have arisen from them. “All that is necessary therefore is that there should have been ‘dealings’ (in an extended sense which includes the commission of a tort or the imposition of a statutory obligation) which give rise to commensurable cross-claims. In Gye v. McIntyre itself, the one party was liable to the other for money lent and the cross-claim was for damages in tort for fraudulently inducing the borrower to enter into a separate contract to which the lender was not a party”.

The argument for Aer Lingus, as I understand it, is that if their cross-claim that is founded on the contingent employment claims has any real prospect of succeeding, the court has no option but to refuse summary judgment. It is not a matter of discretion but of legal entitlement because, to the extent that Aer Lingus may be able to set off pound for pound, Swissport is not owed the money at all.

I have not been able to accept that submission. I believe that it skips over an essential step of the reasoning. The Rule says that ‘An account shall be taken of what is due from each party to the other’, with a set-off. But who is to take the ‘account’, and what does it mean? Consider first the case of personal bankruptcy, because there we have the advantage of the very clear exposition of the law in Stein v. Blake. At [1996] AC page 252H Lord Hoffmann said:

And at page 256F-G:

Thus in the case of a personal insolvency the decision-maker does not have to take the cross-claim at face value. He is entitled and is required to estimate it. If the cross-claim is, to say the least, shadowy, as is in my judgment the case here, nobody is forced to proceed on the basis of a fiction.

It was not submitted to me that a different principle would apply in the case of an insolvent company and, although I say so with diffidence, it seems to me that a similar principle would apply. Thus under Rule 4.90 of the Insolvency Rules 1986 (S.I. 1986/1925), which seems to have been the rule in force at the relevant date, I would hold that the ‘account’ which is required to be taken properly involves a valuation of the cross-claim. I would reject the submission that, once any sort of cross-claim is shown to be barely arguable, it must be estimated at face value and then set off for summary judgment purposes against an undoubted claim on which summary judgment would otherwise be available.

Applying that principle to the facts of the present case, Aer Lingus may possibly have a cross-claim against Swissport arising out of the TUPE claims that, if successful, might be set off against the sum found to be due on the ground handling charges as held by the Deputy Master. But for the reasons I have tried to explain in paragraphs 35 to 39 above, it is to be held in low esteem. The upshot is that, whether the cross-claim is deployed as a counterclaim (i.e. a potential discretionary bar under CPR 24.2) or as an insolvent set-off, should make no difference in this case.

I therefore proceed to exercise my discretion under CPR 24.2 having regard to the circumstances of the case.

I bear in mind that Swissport – in practice, Swissport’s creditors – have waited for their money for a long time. I also bear in mind that (as things have turned out) Aer Lingus wrongly disputed Swissport’s invoices for ground handling charges. I further bear in mind that, if it were not for that, Swissport would have been paid long ago and that, in an appropriate sense, Aer Lingus have benefited from that wrongful disputation. The money should now be seen to go into a bank account controlled by Swissport’s liquidators. However, the possibility that the EAT may allow the appeal should now be considered.

It is the business of the Employment Tribunal for London South to know the law of employment and to find the facts upon which the law is to be applied. The Tribunal heard evidence for 4 days and considered the general principles to be “well established”. An appeal lies to the EAT on a point of law and if that appeal had fallen to be decided on some remotely future date it might well have been appropriate for me to ignore the possibility of it succeeding. However it appears that the decision of the EAT will be available very soon, although I do not know exactly when. It seems to me that it would be sensible to have the benefit of it, if that can be done without unduly prejudicing the interests of Swissport, or rather, its creditors.

In my judgment justice would be done by upholding the Deputy Master’s order (with an appropriate updating of the interest element, of course) but subject to a condition. The condition is intended to deal with the eventuality that the decision of the EAT may put the case in a different light. That seems unlikely, but it is possible.

I would therefore order that Aer Lingus must pay the full amount of Swissport’s claim with interest to the date of my order. However, the liquidators must first give an undertaking to the court not to distribute the sum to the creditors until 14 days after the Employment Appeal Tribunal has delivered its judgment. That is to be expressed to be without prejudice to such other duties as the liquidators may have under the general law, including the law of insolvency.

Thus, if the decision of the EAT does put the case in a different light, Aer Lingus will have the opportunity (for what it is worth) to make such application to the court as they may be advised. The application would have to be founded on fresh circumstances. It would not seek to regurgitate the matters that have been urged upon me. In the unlikely event that the application nevertheless sought to do so, the court would have ample power to award such additional interest and costs as would reflect the justice of the case.

There will have to be consequential orders e.g. concerning payment out of court, and as to costs. I will hear counsel on those matters if so desired.

In conclusion, I want to say that I am most indebted to the arguments of counsel.