Appeal No.	EAT/1315/98

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 23 September 1999

Before
HIS HONOUR JUDGE PETER CLARK
MRS J M MATTHIAS
MR A D TUFFIN CBE

MR M ST HILAIRE & 72 OTHERS	APPELLANTS

HOLIDAY DYES & CHEMICALS LTD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR T LINDEN
(of Counsel)
Instructed by:
Mr D C Cockburn
Messrs Pattinson & Brewer
Solicitors
30 Great James Street
London
WC1N 3HA	
For the Respondents	MR T KEMPSTER
(of Counsel)
Instructed by:
Mr M Brewer
Messrs Pinsent Curtis
Solicitors
41 Park Square
Leeds
LS1 2NS	

JUDGE PETER CLARK:	The appellants are 73 employees of the respondent, Holiday Dyes & Chemicals Ltd, whose claims for unauthorised deductions from wages were dismissed by an Employment Tribunal Chairman Mr D R Sneath, sitting alone at Leeds, on 8th September 1998. That decision was promulgated with extended reasons on 16th September 1998.

Background

1.	The respondent operated an annual profit sharing scheme with its employees, including the appellants. The relevant scheme for present purposes, reduced into writing, is contained in the respondent’s Profit-Related Pay [“PRP”] Scheme Rules dated 1st January 1997.

2.	Under that Scheme the profit period was the calendar year 1997. The Scheme provided that the distributable pool of money to participating employees was 6.65% of the Profit Period Profits, as calculated in accordance with the Scheme Rules, subject to the profits not falling below £1 million for that year.

3.	A final distribution, if one was due, was to be made within three months of the end of the profit period (i.e. by end of March 1998) or if later within six weeks after the accounts for the profit period were signed by the auditors. All employees participating in the Scheme would be entitled to a share of the final distribution out of the Distributable Pool.

4.	It is common ground that the relevant profits fell below £1 million for 1997 and thus no PRP was payable to the participating employees.

5.	During 1996 pay negotiations took place between trade union representatives of the employees, including all the applicants for present purposes and the respondent. The trade union side was led by Mr Webster, the Branch Secretary, and the management side by Mr Armitage, the Production Director.

6.	In evidence before the Chairman were notes of a wage negotiation meeting held on 22nd May 1996, to which he refers in paragraph 10 of his reasons. The background to the wage bargaining that year was that the respondent had recently acquired a business called James Robinsons [“JR”]. It was the aim of the negotiators to bring the level of pay at the respondent up to that enjoyed by employees at JR over a period of time.

7.	The management offer tabled by Mr Armitage at the 22nd May meeting was expressed in this way; 1% on basic rate, 1% subject to the acceptance of flexible working terms and finally 1% increase on PRP in 1997.

8.	Amongst the reservations expressed on the union side to that proposed package was this:

“PRP: It was felt that this offer would be greeted with an air of scepticism, as PRP was not seen as guaranteed income.”

9.	The culmination of the ensuing negotiations was an Agreement in writing signed on behalf of the Company by Mr Armitage and by Messrs Webster and Rayner on behalf of the union [“the 1996 Pay Agreement”]. It is common ground that the terms of that agreement were incorporated into the individual contracts of employment of the appellants.

10.	The terms of the 1996 Pay Agreement, so far as may be material, were these:

“1.	Wage rates to increase to JR levels over 4 years as outline in table below, based on an estimate of the JR negotiated agreement for 1996. The figures shown for JR’s will be adjusted to the actual JR 1996 pay levels following agreement being reached.
[The table is then set out.]
2.	2½% on shift rates.
4.	1% of annual salaries and wages bill to be added to PRP from 1997.”

	Thereafter in the 1997 Pay Agreement Clause 4 of the 1996 Agreement was reiterated in Clause 6 of the later Agreement.

11.	The profit figure for 1997 having fallen below the threshold £1 million needed to trigger PRP, it is as we have said common ground that no PRP was payable. However, the appellants did not receive a payment to reflect 1% of the annual salaries and wages bill, the first part of Clause 4 of the 1996 Pay Agreement.

12.	Accordingly they brought complaints of unauthorised deductions from wages to the Employment Tribunal. It was and is their case that the 1% payment was due regardless of whether any PRP was earned under the PRP Scheme. Those claims were resisted by the respondent. It was and is their case that the 1% figure was not free-standing; it went to swell the Distributable Pool under the PRP Scheme. Since there was no pool for distribution under the Scheme, no payment was due.

The tribunal decision

13.	In addition to the documentary evidence to which we have referred, the Chairman received oral evidence from Mr Webster and Mr Dawson, the union shop steward, as to their understanding of Clause 4 of the 1996 Pay Agreement. The respondent called no oral evidence.

14.	Their “understanding” coincided with the appellants’ case that the 1% payment under Clause 4 would be made regardless of whether PRP was due under the terms of the PRP Scheme. The respondent argued that it was the parties’ intention that the 1% was only payable if PRP was due under the Scheme.

15.	The Chairman concluded, as a matter of fact, that each party believed that Clause 4 meant what they said it meant. Accordingly, there was no meeting of the minds; the parties were not ad idem; that meant, he concluded, that there was no agreement and therefore the appellants’ claim failed. 

The Appeal

16.	The first question in the appeal, identified by a division of the Appeal Tribunal at a preliminary hearing held on 9th February 1999, Charles J presiding, is whether the Chairman erred in law in his approach to the proper construction of an agreement in writing.

17.	As to that issue there is no real difference between Counsel who appear before us today, neither of whom appeared below. Although the point is not formally conceded by Mr Kempster, we are satisfied that the Chairman did fall into error.

18.	As Mr Linden submits, where the parties reduce their agreement into writing, the meaning of that agreement is to be determined by reference to the words there used, interpreted against the factual background. Evidence of the subjective intention of the parties as expressed in prior negotiations is strictly irrelevant and therefore inadmissible, since during negotiations the parties’ positions are constantly changing and it is only the final document which actually records their agreement.

19.	Further, whereas extrinsic evidence may be admissible as an aid to construction where the words used are ambiguous, the only purpose of admitting such evidence is to ascertain the objective meaning of the words used in the agreement itself.

20.	Where the Chairman went wrong in his approach, in our judgment, was to enquire whether the parties were ad idem in the pre-contract negotiations. Having found that they were not, he then purported to find that there was no agreement between the parties. Plainly there was: the 1996 Pay Agreement, and in particular Clause 4, represents the agreement made between the parties.

21.	Secondly, the Chairman found that because the parties entertained different beliefs as to the meaning of the final formula contained in Clause 4, the words of that Clause were ambiguous and thus there was no agreement reached. It is inevitable, where a dispute exists between the parties as to the true meaning of a written contractual term, that at trial they will not subscribe to the same construction. Hence the dispute. If that rendered the final agreement “ambiguous” such that there was in fact no agreement, no claimant would ever win his case.

22.	In short, the correct approach is to decide the case on the words of the final written agreement made between the parties, judged against the background of the factual matrix in which the agreement came to be reached. See the speech of Lord Hoffman in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912H-913E, and the observations of Sir Thomas Bingham MR in Adams v British Airways PLC [1996] IRLR 574.

23.	We accept those submission and accordingly, on the fact of it, this appeal falls to be allowed and the Chairman’s decision set aside.

24.	However, that is not quite the end of the matter. Mr Kempster, whilst not seriously challenging Mr Linden’s analysis of the right and wrong approach to construction, submits forcefully on the authority of Hellyer Brothers Ltd v Mcleod [1987] ICR 527, 547, that no further factual investigation is required. The question of construction of the written agreement is one of law and thus we are able to decide it in accordance with our powers under s.35 of the Employment Tribunals Act 1996. All that is necessary for the construction exercise is consideration of Clause 4 of the 1996 Agreement, as continued the by 1997 Agreement Clause 6, and the 1997 PRP Scheme.

25.	Mr Linden disagrees. He submits that because the Chairman took the wrong approach to construction all necessary findings of fact have not been made as to the factual background which affects the way in which the language of the 1996 Agreement would have been understood by a reasonable man, to adopt the test of Lord Hoffman in ICS.

26.	For example, it may be necessary to follow the course of pre-agreement negotiations between the parties, not to ascertain the parties’ intentions, but to assist in the objective construction of the words used in the agreement, it being common ground that the words themselves are ambiguous, that is, not necessarily capable of understanding without more.

27.	Mr Linden does not accept that the question of construction can properly be decided simply by reference to the 1996 Pay Agreement and the PRP Scheme, together with the later 1997 Pay Agreement.

28.	Applying the approach of the Court of Appeal in Hellyer Brothers the question we must ask ourselves, before embarking on a construction of the relevant term ourselves, is whether we are able to conclude that without further amplification or reinvestigation of the facts over and above those found by the Chairman, the decision which he reached is either plainly and unarguably right or wrong. We cannot, in the circumstances of this case, answer that double question in the affirmative. In these circumstances the only proper course is for us to allow the appeal and to remit the case to a fresh Employment Tribunal. With the concurrence of the parties we further direct that at the remitted hearing the case should be heard by a full Employment Tribunal consisting of three members.