Alderson and Others v Secretary of State for Trade and Industry
| Jurisdiction | England & Wales |
| Judge | Lord Phillips MR: |
| Judgment Date | 08 December 2003 |
| Neutral Citation | [2003] EWCA Civ 1767 |
| Date | 08 December 2003 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: 2003/0661 |
[2003] EWCA Civ 1767
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ADMINISTRATIVE COURT
The Hon Mr Justice Newman
QUEEN'S BENCH DIVISION
Lord Phillips of Worth Matravers
Mr Lady Justice Arden and Lord Justice Dyson
Case No: 2003/0661
Mr N Underhill, QC and John Cavanagh, QC (instructed by Thompsons) for the Appellant
Nicholas Paines, QC and Kassie Smith (instructed by Treasury Solicitors) for the Respondent
This is the judgment of the court.
This is an appeal from the judgment of Newman J dated 21 February 2003. It involves a point of statutory construction that arises in unusual circumstances. Council Directive 77/187/EEC, known as the Acquired Rights Directive ("ARD") is designed to safeguard the rights of employees when the undertaking in which they are employed is transferred from one employer to another. In essence the ARD requires the new employer to continue to employ the employees on the same terms that they enjoyed before the transfer.
Article 1 of the ARD states that it applies to:
"the transfer of an undertaking, business or part of a business to another employer as a result of a legal transfer or merger"
The ARD contains no definition of 'undertaking' or of 'business'. The United Kingdom attempted to give effect to the ARD by SI No 1974, the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE"). TUPE included the following definition of 'undertaking'.
"'Undertaking' includes any trade or business but does not include any undertaking or part of an undertaking which is not in the nature of a commercial venture"
The effect of the phrase that we have placed in italics is the vital issue in this appeal. We shall refer to this phrase as "the words in italics".
This action involves 122 claimants but it has proceeded by way of the claim of only one of these, Mr Ronald Davies, who has been treated as a representative claimant. Mr Davies represents not only the claimants in this action, but claimants in a number of similar actions. We have been told that this action will determine the fate of some 2000 employees.
Mr Davies was a refuse collector, employed by Liverpool City Council ("the Council"). The Council transferred its refuse collection service to a commercial company, Onyx UK Limited ("Onyx"). Onyx now collects Liverpool's refuse under contract with the Council on terms that enable Onyx to make a profit. Onyx offered employment to some, but not all, of those who had been employed by the Council in its refuse collection service. The terms and conditions offered by Onyx were less favourable than those the employees had enjoyed when working for the Council. Mr Davies is one of those who accepted employment by Onyx on those terms.
It is now common ground that the transfer of the refuse collection service from the Council to Onyx was one which fell within the terms of Article 1 of the ARD. The United Kingdom should have introduced regulations that would have secured for Mr Davies and his fellow employees the protection required by the ARD. It is Mr Davies' case that, by including in the definition of 'undertaking' in TUPE the words in italics, the United Kingdom erroneously excluded the transfer of the Liverpool refuse service from the protection of the regulations. If this is correct, Mr Davies and his fellow employees are entitled to recover damages from the Government to compensate them for the prejudice that they have been caused as a result of the United Kingdom's error.
Newman J had to address two issues:
i) Was there a transfer of "an undertaking, business or part of a business" within the meaning of the ARD? If so:
ii) Was the "undertaking, business or part of a business" transferred "in the nature of a commercial venture" so as to fall within the protection of TUPE?
Newman J held, contrary to the submission of the Secretary of State, that the Council's refuse collection service was "an undertaking, business or part of a business" and that it was transferred from the Council to Onyx. There is no appeal against that finding.
Newman J went on to hold that the refuse collection service was "in the nature of a commercial venture". This meant that the employees were within the protection of TUPE and had no claim for damages against the Secretary of State. Mr Davies claims that Newman J erred in making the latter finding. He contends that the judge should have held that the refuse collection service was not "in the nature of a commercial venture" and upheld his claim for damages.
Background history
There is an unusual background to this appeal, which it is necessary to set out in a little detail. Only once before has the meaning of "in the nature of a commercial venture" in TUPE been considered by the Court of Appeal. That was in the case of Woodcock and others v Committee for the Time Being of the Friends School, Wigton [1987] IRLR 9 A school, which had been operated by Quakers as a registered charity, had been sold to a company. The issue was whether or not this was a transfer covered by TUPE. The Industrial Tribunal, the Employment Appeal Tribunal and the Court of Appeal held that it was not, on the ground that the school was not a business or undertaking "in the nature of a commercial venture". In considering this question the focus was exclusively on the school before transfer. The report does not even disclose whether, as we suspect to have been the case, the company bought it in order to run it as a profit-making business.
The Industrial Tribunal held that the school was not "in the nature of a commercial venture" because it was not a business in which capital was invested with a view to profit. The Employment Appeal Tribunal took a broader view. They held:
"…. the proper meaning of the words 'in the nature of a commercial venture' is very much a matter of first impression. The majority form the view that undoubtedly the operation conducted by the first respondents was an undertaking in the sense at least of being a trade or business but that the operation was excluded from being an undertaking within the meaning of the Regulation because it was not in the nature of a commercial venture. The way that it was organised, conducted (particularly the way its finances were conducted), the fact perhaps above all of its charitable status combined, in the judgment of the majority, to make it an enterprise which could not fairly be described as an undertaking in the nature of a commercial venture."
In the only reasoned judgment in the Court of Appeal, with which the other two members of the court agreed, May LJ held:
"For my part, although as a general guide I think that the fact that a venture or enterprise is entered into with a view to making a profit is a consideration in deciding whether or not it is in the nature of a commercial one, that is only a general guide and I prefer the first impression approach of the Employment Appeal Tribunal to the particular question in issue. I think that it is impossible to define 'in the nature of a commercial venture' so as to cover every particular set of circumstances. I think I know a commercial venture when I see one and I did not recognise the operation of this school in the manner found by the Industrial Tribunal as a commercial venture. The way in which it was organised, to which the Employment Appeal Tribunal referred, is of course a consideration in enabling me to recognise or not to recognise the school as being an enterprise in the nature of a commercial venture. There are many considerations which one has to bear in mind in taking a global view of the school as a whole. The religious background, the charitable status, the unpaid committee are all considerations. The fact that fees are paid, that the object of the Committee is certainly not to make a loss, but year in year out overall to break even which necessarily involves the making of a profit in one year if a loss is likely in the next, or building repairs have to be done, are also considerations which I bear in mind in deciding whether or not I recognise this particular enterprise as being in the nature of a commercial venture or not.
Without in any way seeking to give a definition but to express the sort of indication which would have its effect upon my mind, I refer to two definitions, one in the large Oxford Dictionary and one in the concise volume where in the first 'commercial' is defined in one definition as 'viewed as a mere matter of business, looking towards financial profit', and in the concise volume the first definition of 'commercial' is 'of, engaged in, bearing on commerce, interested in financial return rather than artistry'. It is 'rather than artistry' which I think is the pointer which has an effect on my mind in preventing me from recognising this enterprise as being in the nature of a commercial venture."
In 1994 the European Commission brought enforcement proceedings against the United Kingdom, alleging a number of failures to comply with the ARD – Commission of the European Communities v UK [1994] ICR 664. The European Court dealt with the relevant complaint as follows:
"The third complaint
40 The Commission argues in its third complaint that the United Kingdom Regulations of 1981, as interpreted by courts and tribunals in the United Kingdom, do not apply to non profit making undertakings, contrary to article 1(1) of Directive (77/187/E.E.C.), as interpreted by the court. The Commission refers in this connection to Dr Sophie Redmond Stichting v...
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