Notes of Cases
| Date | 01 November 1962 |
| DOI | http://doi.org/10.1111/j.1468-2230.1962.tb02228.x |
| Published date | 01 November 1962 |
NOTES
OF
CASES
TERMINAL
COMPENSATION
FOB
EMPLOYEES
OF
COYLP~IES
IN
LIQUIDATION
THE recent case of
Parke
v.
Daily
News,
Ltd.,’
raised
in
a dramatic
form a question which
on
a smaller scale directors and liquidators
often have
to
consider, namely, whether it is legitimate
on
the
cessation of the whole or part of a company’s business for gratuitous
compensation to be paid out of its assets to employees who are
dismissed. Each employee is, of course, contractually entitled to
such notice of dismissal as
his
contract of employment provides, or,
if none is provided, to reasonable notice, but the courts
in
the past
have been rather conservative
in
deciding what is reasonable notice
in the case of inferior servants, and the good employer today usually
considers himself under at least a moral obligation to be more
generous in
giving
notice of dismissal or paying wages in lieu of
notice.
The facts of
Parke
v.
Daily
News,
Ltd.
were
as
follows.
By
1958
the directors of Daily News, Ltd. realised
that
the
continuing
losses sustained
in
publishing their newspapem, the
News
Chronicle
and the
Stary2
would
soon
compel
them
to
cease
publication unless
an adventitious stroke of good fortune came their way, and
so
their
managing director entered into negotiations with the managing
director of Associated Newspapers, Ltd. to settle the terms
on
which
the latter would purchase the premises, plant and goodwill of the
two newspapers
if
Daily News, Ltd., chose
to
sell. The terms finally
settled
in
January
1959
provided for a cash payment of approxi-
mately
E2
million
to Daily News, Ltd., that Associated Newspapers,
Ltd. would employ
as
many of Daily News, Ltd.’s employees
as
possible
if
the take-over materialised, but that Associated would not
make provision for the pensions and/or compensation of employees
not taken over by it. The plan for the take-over,
8
kind of
“
put
”
option for Daily News, Ltd., was extended for successive three-
month periods until August
1960,
when Daily News, Ltd., in view
of its continuing ill-fortune, decided to sell. However, both sides
feared difficulties with their employees’ trade unions, and
so
before
formal contracts were exchanged and the takeover announced to
the public
in
October, a scheme was devised by which the whole
of
the purchase price (after payment of the costs of the sale) was
to
1
[1962]
3
W.L.R.
666;
[lS69]
9
All
E.R.
929.
a
The
News
Chronicle
and
the
Star
were
actually
owned
by
two
wholly
owned
715
aubsidianes
of
Daily
News,
LM.,
but
nothing
turned
on
this.
716
THE
MODERN
LAW
REVIEW
Vot
I
be applied (i) in paying wages in lieu of notice of dismissal to all
members of Daily News, Ltd.’s staff, and also in paying holiday
money to those entitled to it;
(ii)
in setting aside
€900,000,
the
amount of an employees’ pension fund established by Daily News,
Ltd. in
1959;
this fund had never been segregated from Daily News,
Ltd.’s other assets, but there was
no
doubt that its employees had
valid equitable interests therein; and (iii) in paying compensation
for loss of employment to each employee
on
the basis of one week’s
basic pay for every year of service with Daily News, Ltd. over the
age of twenty-one; the total amount of compensation was estimated
at
€1,500,000.
The scheme
for
distributing the purchase-money was
revealed to employees’ representatives before the take-over was
announced publicly, and
it
took a prominent place in the exchange
of
letters between the chainnen
of
the boards of the two companies
which were published at the same time. The shareholders
of
Daily
News, Ltd. were 5rst individually informed
of
what had happened
by a circular sent out
on
the day the take-over was completed, and
it
was only in November (a month later) that the directors decided,
on
legal advice after certain shareholders had expressed dissatis-
faction,
to
call a general meeting to approve the payment of
compensation to former employees
in
accordance with the scheme.
Parke, a shareholder
of
Daily News, Ltd., sued
on
behalf
of
himself
and all other shareholders
of
the company, except the defendant
directors, for a declaration that the approval
of
the scheme by the
general meeting would
be
void, and an injunction to restrain the
company from applying its assets in paying the compensation.
The company sought to justify the payment
of
compensation in
t#&
ways, namely, that the company obliged itself to pay the
compensation by the contract for sale to Associated Newspapers,
Ltd.
or
by an independent agreement evidenced by the exchange
of
letters between the chairmen of the two companies,8 and that
even
if
the compensation were gratuitous,
it
was nevertheless
intra
vires
Daily News, Ltd. to pay
it.
Plowman
J.
found that there was
no
contract
for
the payment of compensation. The contract
for
sale
contained merely a negative term that Associated Newspapers, Ltd.
should not
be
liable to compensate dismissed employees
of
Daily
News,
Ltd.
;
there was
no
positive term that anyone should be liable
to
pay compensation. The exchange
of
letters between the chair-
men
of
the companies merely embodied a statement
of
the parties’
intentions;
it
was not intended that they should create
a
contract.
Furthermore, even
if
there were a contract, the matter would not
be concluded,
for
unless the contract were
intra
uires
Daily News,
Ltd.,
it
would
be
void, and its implementation could be restrained
at the suit of a shareholder.
The main issue, therefore, was whether the payment
of
8
Dsily News, Ltd.
slso
pleaded
that
its newsprint suppliers released
it
from
its contracts
with
them
only
on
condition that the compensation paymenti
were made, but this point
WSO
abandoned at the hearing.
To continue reading
Request your trial