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	United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Secretary Of State For Trade & Industry v Forde [1996] UKEAT 213_96_0310 (3 October 1996) URL: http://www.bailii.org/uk/cases/UKEAT/1996/213_96_0310.html Cite as: [1996] UKEAT 213_96_0310, [1996] UKEAT 213_96_310

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APPEARANCES

 

For the Appellant	MR R JAY (of Counsel) The Treasury Solicitor Queen Anne's Chambers 28 Broadway London SW1H 9JS
For the Respondent	NO APPEARANCE BY OR ON BEHALF OF THE RESPONDENT


 


JUDGE HICKS QC: Mrs Forde, the respondent to this appeal, had been employed for four years as a clerk/typist by a partnership firm called Fox & Naisbit, which consisted of a Mr Hurley and a Mr Crowley. On 21st February 1994 that firm ceased trading, and as a result Mrs Forde lost her job. Clearly her dismissal entitled her to a redundancy payment and in fact as the Industrial Tribunal found she was further entitled to arrears of wages, holiday pay and wages in lieu of notice.

She brought claims against Mr Hurley and Mr Crowley. Originally only Mr Crowley could be served, but the Industrial Tribunal adjourned the application so that Mr Hurley could be served as well, and that in due course was done, and the tribunal dealt with the substance of the application. Because Mr Hurley and Mr Crowley were clearly very unlikely to be in a position to pay any sums which would be due Mrs Forde also joined the Secretary of State for Trade & Industry in order to take advantage of the rights which arise under Section 106 of the Employment Protection (Consolidation) Act 1978, which was the Act then in force, in relation to redundancy payments, and Section 122 in respect of the other liabilities.

At the hearing before the Industrial Tribunal the tribunal found as a fact that Mr Crowley had been adjudicated bankrupt but that Mr Hurley had not or, as the tribunal put it, there was no evidence that Mr Hurley was insolvent. We think that must have been effectively a reference to the way in which insolvency is defined in the Act, to which we must come in due course, because in the ordinary sense of the word there was quite a lot of evidence that Mr Hurley was insolvent, not least the fact that both he and Mr Crowley were under prosecution for offences involving fraud, as well as the cessation of trading and the fact that Mr Hurley had disappeared from his previous residence. But, as we shall show when we come to deal with the definitions, the tribunal was undoubtedly correct in saying that for the purposes of the Act Mr Hurley was not insolvent.

In the case of redundancy payments the criteria which the employee has to meet include an alternative, because in addition to there being a right when the employer is insolvent there is also a right when the employee has taken all reasonable steps to recover the money from the employer and has failed, and on that basis the Industrial Tribunal had no difficulty in finding that Mrs Forde had taken all reasonable steps and was therefore entitled to recover the redundancy payment from the Secretary of State, and the Secretary of State accepts that decision and does not appeal against it.

In the case of the other payments, however, the only basis on which the Secretary of State becomes liable - and we omit the details of the steps by which applications are made, which first of all involve a decision by the Secretary of State himself, and only if that is adverse a complaint to the Industrial Tribunal - but the only circumstances in which the Secretary of State becomes liable for present purposes are those in which as it is expressed in Section 122(1)(a) "the employer of that employee has become insolvent." The question therefore is whether that criterion was satisfied, and it has to be addressed by reference to the interpretation provisions of Section 127, which applied to the interpretation of, among others, Section 122, and which for present purposes in subsection (1) reads:

"(1) For the purposes of sections 122 to 126, an employer shall be taken to be insolvent if, but only if, in England and Wales,-

(a) he has been adjudged bankrupt or has made a composition or arrangement with his creditors."

Then (b) deals with case of death, and (c) deals with the case of an employer who is a company. There is no (d) dealing with the case of an employer who is a partnership, and no provision there or elsewhere in the Act which provides a definition of "employer" relevant to the requirement that an employer has been adjudged bankrupt. The fact, of course, is that a partnership in law consists simply of a number of individuals trading together; it has no corporate or legal existence as a separate entity, and the problem which was faced by the Industrial Tribunal, and which faces us, is therefore that we have a criterion which asks whether an employer has been adjudged bankrupt, when the employer is in fact a collection of individuals and no provision is made by the Act itself as to whether that means that they must all have been adjudged bankrupt or one of them must have been adjudged bankrupt, or the majority, or any other test of that kind. The statutory provision simply leaves a lacuna, which could have been filled but has not.

Faced with that problem, the Industrial Tribunal dealt with it in this way. Having found that Mr Crowley was bankrupt, and therefore insolvent for the purposes of the Act, but Mr Hurley was not, they then go on to say:

"4 ... However, it is clear that the partnership as such is insolvent as it has ceased trading and cannot pay its debts. Nevertheless, we do not need to rely on that provision in determining whether the employer was insolvent, although I think we could do so in any event."

Well, to dispose of that way of dealing with the matter, it is quite clear that insolvency in the general sense of being unable to pay one's debts as they arise is not the test, because of the definition in Section 127(1). Had the ordinary meaning of insolvency been the test, it may well be that the tribunal would have had no difficulty in finding it satisfied, but it is clear in our view that that is not the test.

The tribunal then goes on in paragraph 6 of their reasons to explain the juridical status of a partnership in perfectly orthodox terms, as having no separate legal entity from those comprising it. Then they continue in this way:

"6 ... Any third party which would include an employee has no need to issue proceedings against all of the partners but can choose to sue only one. In these circumstances it is clear that we can treat the Applicant's claim as having been made against Mr Hurley and Mr Crowley individually, even though it may have been a collective entry. In our findings which are incontrovertible, Mr Crowley was bankrupt and therefore insolvent and there the Applicant's complaint can proceed against him as an insolvent partner and employer. In those circumstances the Secretary of State's contentions ... are not accepted."

In dealing with the matter in that way we fear that the Industrial Tribunal erred in law, because they are there asking the question, as we understand it, whether the respondent to the proceedings is insolvent in the sense of having been adjudicated bankrupt. If that were the test, then it may well be - we do not have to decide whether even then the conclusion would follow - but it may well be that if that were the case it would at least be arguable that the conclusion follows that the employee could bring proceedings individually against one of the partners, that partner, the respondent, being bankrupt. That respondent would then be insolvent for the purposes of the Act and we see the argument that on that basis the Secretary of State would also be liable. But there are two difficulties about that in this case. The first and less important one is that in fact Mrs Forde has not brought proceedings against Mr Hurley alone; she has brought them against both partners, and indeed the tribunal itself had at an earlier stage adjourned the application so that Mr Hurley, the non-bankrupt partner, could be served. But, much more importantly, the error of law is to treat Section 122 as reading "If an application has been made to the Industrial Tribunal, and the respondent has become insolvent", etc., instead of "If on an application the Secretary of State is satisfied that the employer has become insolvent". There is no escaping the fact, as it seems to us, that the test is not as to the status of the parties to the current application, but simply and solely as to status of the employer of the applicant employee. Indeed, at the point at which Section 122 bites, which is the application not to the tribunal but to the Secretary of State, there are no proceedings current before the tribunal anyway, or need not be.

The tribunal having therefore, as we believe, erred in law, we have to address the question ourselves what is the true construction of the Act in this respect. As I have already indicated, it is quite clear that there is a lacuna, a failure to deal with the situation of a partnership employer, and there is simply no way in which the words can literally be applied; the partnership is not an entity which can be or would be adjudged bankrupt. There are proceedings elsewhere in legislation dealing with insolvent partnerships, but quite apart from the fact that no such proceedings have been taken in this case that does not seem to assist the present problem of interpretation, because those proceedings do not as such result in an adjudication of bankruptcy against the partnership. It is still a question to be answered in relation to each partner individually: has he or she been adjudged bankrupt or not?

Mr Jay's submission for the Secretary of State is primarily that the policy of the Act is to provide this liability of the Secretary of State as a safety net when recourse against the employer fails, and that in those circumstances the correct interpretation is that when Section 127 requires that the employer has been adjudged bankrupt that, in the case of a partnership, means each and every partner, because not until all partners have been adjudged bankrupt can it be said that recourse against the employer is fruitless and the liability of the Secretary of State needs to arise.

Mr Jay frankly and very sensibly, as it seems to us, accepts that in hard cases, of which this is clearly one, that can result in what appears to be injustice to the applicant, but on instructions he is putting that forward as being the correct interpretation, and we also must consider whether it is as a matter of statutory interpretation. Of course hardship is not irrelevant; if it were quite apparent that this could not have been intention of the Parliament then we would seek any other possible alternative interpretation. But as soon as one starts to put examples one realises that they do not necessarily lead to any clear conclusion. Mr Jay put at an early stage of his argument the example of a substantial partnership of say 100 partners - and large partnerships of that kind are far from being unknown or even unusual. He rhetorically asks: if only one of the 100 partners is bankrupt, why should the Secretary of State be liable? But that of course can be immediately met by the counter-example where 99 are bankrupt and the remaining partner is plainly penniless and the reason for his or her not being made bankrupt is to be found in simple administrative difficulty or compassion to somebody in medically difficult circumstances or something of that kind. In a case like that why on earth should the Secretary of State not be liable? It does not seem to us that examples of that kind really help us very much one way or the other.

There is one provision in the statute which is of some relevance, and that is Section 125, which provides that where the Secretary of State has made a Section 122 payment the employee's rights and remedies pass to the Secretary of State. The result - we do not I think need to go into the detail of the Section - but the result seems plainly to be that if for instance an individual employer becomes bankrupt and the Secretary of State pays and that employer, perhaps before discharge from bankruptcy comes into a very large amount of money, then the Secretary of State will be able to recoup the payment.

In so far as that helps at all, it perhaps would give some weight to the construction that the requirement of Section 122 is satisfied if any one partner becomes bankrupt, because the Secretary of State, it might be said, has in those circumstances nothing to lose by paying up. If the other partners really are solvent he will be able to recover from them; if they are not, then the substantial policy of the Act has been met, and there is no reason why he should not pay. That, however, is but a slight indication, and in the end we find ourselves forced to the conclusion that Mr Jay's submissions are correct. We see no other alternative to the construction for which he contends apart from the other extreme of reading it that if any one partner, when the employer is a partnership, has been adjudged bankrupt, the Secretary of State becomes liable, and it does seem to us that the policy of the Act is, as one would expect, to provide the liability of the Secretary of State as a last resort, and not as a quick means by which employees can obtain payment, leaving the burden on the Secretary of State to recoup from other persons who may be liable.

No authority has been cited to us, and as far as Mr Jay's researches go there is no authority directly on this point. He tells us that there are authorities in cases where the employer is a company which establish that Section 127 must be applied strictly, so that winding up (or by analogy) adjudication in bankruptcy is required; simple insolvency in the ordinary sense is not sufficient. The simple fact the company is plainly totally incapable of paying its debts will not do. For that reason the corresponding escape route is not open in this case, and that is the reason why we have concentrated on the stark question: "what does it mean to require that the employer is bankrupt, when the employer is a partnership?"

For the reasons we have given, we reluctantly feel that we have to answer that by saying that what is required is that every partner must have been adjudicated bankrupt, and on that basis the appeal must be allowed. The facts are all clear and established and there is no point in remitting the application for further consideration by an Industrial Tribunal. We simply allow the appeal, and discharge the order for payment against the Secretary of State except so far as it relates to the unappealed decision as to the redundancy payment.