Appeal No.UKEAT/0603/06/DM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 18 April 2007
Judgment handed down on 27 June 2007

Before
HIS HONOUR JUDGE SEROTA QC
(SITTING ALONE)

TRANSPORT & GENERAL WORKERS UNION	APPELLANT

1) SWISSPORT (UK) LTD IN ADMINISTRATION
2) AER LINGUS LTD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	Mr O Segal
(of Counsel)
Instructed by:
Messrs Thompsons Solicitors 
Congress House
Great Russell Street
London
WC1B 3LW	
For the 1st Respondent

For the 2nd Respondent
	Mr G Clarke
(of Counsel)
Instructed by:
Messrs Olswang Solicitors
90 High Holborn
London 
WC1V 6XX

Mr B Napier
(One of Her Majesty’s Counsel)
Instructed by:
Messrs Speechly Bircham Solicitors
6 St Andrew Street
London
EC4A 3LX	

SUMMARY
Transfer of undertakings – Acquired rights directive / Entity
1.      The transferor provided ground handling services to the putative transferee. The Employment Tribunal fell into error in finding that there could be no TUPE transfer, following the insolvency of the transferor, in circumstances where the undertaking said to have been transferred was not a stable economic identity in the hands of then transferor, because there was insufficient dedication of staff, premises and equipment to the transferee's contract. The Employment Tribunal was bound to consider the position as at the date of the putative transfer and determine whether  a stable economic entity existed at that date carved out of the larger entity of which it had formed part when in the hands of the transferor. Fairhurst Ward Abbotts Ltd v Botes Building Ltd [2004] IRLR 304 applied.
2.      The TUPE Regulations are capable of applying to any transfers effected consequent upon an insolvency, including in those cases in which the insolvent transferor does not continue to trade, or where no part of its undertaking is transferred as a going concern; Belhaven Brewery v Berekis UKEAT/724/92 followed, Perth and Kinross Council v Donaldson 2004 IRLR 121 not followed.

HIS HONOUR JUDGE SEROTA QC

Introduction
1.	This is an appeal from a decision of the London (South) Employment Tribunal dated 8 October 2006.  The Chairman was Mr G Tyler who sat alone.  The hearing lasted over six days.  The claim arises out of proceedings by the Claimant for protective awards and failure to consult.  There are also claims by the individual Claimants in relation to their dismissals.  The hearing was of a preliminary issue.  The Chairman held as follows:-

“It is the judgment of the Tribunal that 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 the First Respondent to the Second Respondent at Heathrow Airport.  Accordingly, when on 16 November 2004 the First Respondent ceased to trade and the Second Respondent commenced the provision to itself of ground handling operations at Heathrow Airport there was no transfer of an undertaking to which Regulation 3 of TUPE applied.”

The Factual Background
2.	I shall refer to the parties as follows; I shall refer to the Claimants as “the Claimants”, to Swissport (UK) Limited as “Swissport” and to Aer Lingus Ltd as “Aer Lingus”. 

3.	Swissport provided ground handling services to Aer Lingus at terminal 1 at Heathrow.  It became insolvent and was placed in administration.  Services that had been provided by Swissport were taken in house by Aer Lingus in circumstances where it took on a number of former Swissport employees through an agency and made use of equipment and premises formerly used by Swissport.  

4.	My recital of the facts has largely been taken from the decision of the Chairman.  It must be noted, however, that the Chairman did not make factual findings in relation to two matters of significance:
(a)	as to the insolvency of Swissport and in particular the purposes and outcome of its administration 
(b)	the details of the ground handling operation at the time when Aer Lingus took it in house including the manner of its administration and the structure of its management. 

5.	I have also read at the request of the parties the witness statement of Paul Holden (a Director of Deloitte and Touche LLP).  The joint administrators Mr Neville Kahn and Nicholas Dargan are from that firm.  I have also read the witness statement of Stanley Adamson the Ramp Manager for Aviance UK Ltd at Belfast City Airport.  Mr Adamson had undertaken various managerial roles while formerly employed by Swissport including Ramp Manager and Passenger Manager across terminal 1, terminal 2 and terminal 3 of Heathrow Airport.  

6.	Based upon the factual material to which I have referred the Claimants have submitted that the evidence points to the inevitable and unarguable conclusion that I should find there was a TUPE transfer. The Respondents have submitted that there could not be such a transfer because of the nature of Swissport’s insolvency.  I am quite satisfied that there are fact sensitive issues relating to both questions and it is inappropriate for me to conduct a fact finding exercise which should be done by the Employment Tribunal.  The Employment Tribunal concluded as a matter of law that it was not necessary to make findings of fact as to the details of the ground handling operation when taken over by Aer Lingus nor as to the purposes and outcome of Swissport’s insolvency. 

7.	Swissport provided ground handling services at Heathrow.  Its main customer was Aer Lingus.  There had been an earlier TUPE transfer in December 1999 of the relevant operations by Aer Lingus to Swissport.  The agreement between Swissport and Aer Lingus provided that Swissport would provide services for a 10 year period.  The earlier TUPE transfer is of historical interest only and is not relevant to any of the issues I have to determine.

8.	It is clear that prior to November 2004 Swissport had been under financial pressure for some time.  At 12.00 am on 15 November 2004 Aer Lingus was warned that Swissport would be placed in administration the following day.  On 16 November when Swissport staff arrived for work most of them found they had been locked out and they were denied access to “air side”.  Their BAA security passes had been revoked.  All Swissport staff were dismissed save the three senior operational managers, seven sales desk staff, the freight team and the warehousing team.  Swissport was placed in administration on 16 November.  

9.	Aer Lingus flew in staff to enable it to function on 16 November and arranged with another company, Aviation Resource to provide temporary staff who were required to be experienced and either have air side passes which BAA agreed to swap to Aer Lingus, or Aviation Resource, or five years employment references and a clean criminal record check.

10.	Recruitment began on 17 November 2004 and most of the staff provided by Aviation Resource were former Swissport employees.  Their personnel records were provided to Aer Lingus at its request.  On 17 November 2004 Aer Lingus leased certain ground service equipment from a company, TCR, which had formerly leased that equipment to Swissport.  Most of Swissport’s equipment had in fact been leased from TCR.  It also used some of its own equipment.  Aer Lingus initially leased this from the administrators and later purchased it.  Without this leased equipment Aer Lingus could not have met the demand for ground handling services.  Aer Lingus also took back certain equipment of its own that had been held by Swissport for use in connection with the Aer Lingus ground handling operation.

11.	Aer Lingus leased some offices that had been occupied by Swissport and used Swissport office furniture which it later purchased from the administrators.  

12.	The employees who were initially retained were either all transferred elsewhere, made redundant or resigned.  The sales desk staff were transferred to the particular airlines to which they had been dedicated.  The warehouse team was transferred to Cargo Service Center UK; the freighter team resigned and its employees were offered new contracts with Cargo Service Center UK.  The three senior managers were made redundant on 26 November.  

13.	Aer Lingus provided its own ground handling until May 2005 when it contracted out ground handling services to Menzies Aviation UK; this again is not relevant to any of the issues I have to determine.  

14.	A number of other TUPE claims were made by the Claimants against various alleged transferees.  These claims had all been withdrawn at the date of the hearing before the Employment Tribunal.

The Decision of the Employment Tribunal
15.	The Employment Tribunal set out the facts as I have briefly outlined them above.  Mr Tyler in his decision relied heavily upon the decision of the EAT in Cheesman v Brewer [2001] IRLR 144 (Lindsay J).  He asked himself three questions: 
(a) “What was the totality of the operations performed by Swissport for its airline customers at Heathrow Airport?” 
(b) “What part of the total resources used by Swissport at Heathrow Airport was specifically assigned in the performance of ground handling operations for Aer Lingus?” 
(c) Did the tangible and other assets, manpower and other resources assigned to the provision of ground handling services to Aer Lingus amount to a structured and autonomous undertaking amounting to a stable economic entity?”.

16.	In relation to question (a) I have already set out the facts as found by the Chairman.

17.	In relation to the second question (b) the Chairman considered the position of the various employees of Swissport engaged in passenger handling and ground handling.  He found that a relatively small number were “dedicated” to performance of the Aer Lingus contract.  These were mainly ramp operation employees but also some “care bears”, check-in and departure/arrival gate employees and freight truckers.  All the lost baggage, baggage handling, push back and baggage delivery employees were “non-dedicated” and would work for Aer Lingus and other Swissport clients.  Ground servicing equipment was not dedicated to performance of the Aer Lingus contract nor was the accommodation occupied by Swissport specifically dedicated to the Aer Lingus contract save for one restroom at terminal 1.  The Chairman concluded at paragraph 7.4:-

“7.4	It was, accordingly, my judgment based on the evidence that I heard that very little of that total resource in terms of the Passenger Handling Employees, the Ground Handling Employees, the Ground Handling Equipment and the Ground Handling Accommodation that was deployed by Swissport at Heathrow Airport in the performance of ground handling operations to its airline customers could be said to have been specifically assigned to the performance of such services to Aer Lingus.”

18.	In relation to the third question (c) it is important to see how the Chairman directed himself. At paragraph 8.1 he had this to say:-

“8.1	In my judgment, in order for the Tribunal to find that Swissport’s provision of ground handling operation services to Aer Lingus amounted to an undertaking amounting to a stable economic entity, it was necessary for me to find that sufficient resource in terms of manpower and assets had been specifically assigned to the performance of those operations that would allow those operations to be performed on a self standing basis.  In my judgment this was not the case.”

The Chairman noted that handling employees were not all specifically assigned, in particular, boarding supervisors and lost baggage staff.  Very few of the ground handling staff were specifically assigned, especially push back and baggage delivery staff.  He concluded that the absence of specifically assigned staff in key areas of overall human resource needed to provide a complete ground handling service to Aer Lingus pointed against the existence of an identifiable undertaking amounting to an economic entity.  This view was supported by the absence of dedicated equipment.  When he looked at the tangible assets specifically dedicated to provision of ground handling for Aer Lingus all indicators pointed against a finding of the existence of a stable economic entity.  Only a small amount of equipment was dedicated and similarly ground handling accommodation, save perhaps for one room, had not been specifically assigned to Aer Lingus or any one airline customer at terminal 1.

19.	The Chairman accordingly concluded at paragraph 8.5:-

“8.5	In my judgment (see 7 above) there was no total package or bundle of resources in terms of manpower and assets that had been brought together and which could be said to have been dedicated to the provision of ground handling operations for Aer Lingus alone. It was my judgment that the vast majority of the manpower resource available to Swissport was “pooled” and rostered as needed to provide the ground handling services to all of Swissport’s airline customers at Heathrow Airport. It was my judgment that the assets utilised in ground handling operations in the form of the Ground Handling Equipment and the Ground Handling Accommodation was similarly used on a universal basis for all of Swissports customers and had not been dedicated to any one airline customer.

20.	The Chairman, therefore found that there was no undertaking or part of an undertaking amounting to an economic entity which was identifiable as being the performance of ground handling operations by Swissport for Aer Lingus at Heathrow.  Accordingly there could not be a transfer and thus there could not be any claim under TUPE. 

21.	In the circumstances the Chairman did not answer the second question he was called upon to answer, namely whether an undertaking in the form of a stable economic entity had transferred from Swissport to Aer Lingus on or about 16 November 2005.  It was unnecessary to answer that question because it did not arise. 

The Issues
22.	I had originally understood, having read the party’s submissions, (and my understanding was shared by Counsel for Swissport and Aer Lingus) that the thrust of the Claimant’s case was that the Employment Tribunal had paid too great attention to the question whether Swissport had dedicated specific employees, and equipment and premises to the performance of the Aer Lingus contract when determining if a structured and autonomous undertaking, amounting to a stable economic entity, existed prior to any transfer.  However as Mr Segal, who appeared on behalf of the Claimants developed his submissions it was clear that the main thrust of his argument was that the Employment Tribunal had stopped halfway, as it were, in its determination of whether there was a TUPE transfer.  It had only asked whether a structured and autonomous undertaking amounting to a stable economic entity existed prior to transfer.  The Employment Tribunal should, Mr Segal submitted, have asked whether such an entity was recognisable immediately on the alleged transfer.  

23.	The Respondents’ case was that the Employment Tribunal was correct and that its findings were justified on the facts.  However, even if the Employment Tribunal was wrong Mr Napier QC who appeared for Aer Lingus supported by Mr Clarke, who appeared on behalf of Swissport, submitted that the Claimant could not succeed in showing that there had been a TUPE transfer because the purpose and effect of Swissport’s insolvency and consequent administration order was to render a TUPE transfer impossible.  

Discussion as to the Law
24.	I start by consideration of the question as to what time a stable economic entity must be found to exist for the purposes of a TUPE transfer.  Is it sufficient as the Chairman did here, to examine the position prior to transfer and if a stable economic entity cannot be discerned at that point in time is it unnecessary to consider whether a stable economic entity might have emerged as at the time of transfer?

25.	I am reluctant to add to the numerous cases on TUPE and what is now the European Communities Business Transfers Directive (2001/23/EC) I shall, therefore, confine discussion as far as possible to matters that are specifically in issue in this case.  However for the purpose of the present proceedings it is necessary to set out briefly certain of the relevant principles which indeed are not controversial.  

26.	The purpose of the Business Transfers Directive (which has replaced the Acquired Rights Directive) is to ensure continuity of employment relationships existing within an economic entity, irrespective of any change of ownership; see for example the decision of the European Court of Justice in Temco Service Industries v Imzailyen [2002] IRLR 214, and to safeguard the rights of workers in the event of a change of employer by making it possible for them to continue to work for the transferee under the same conditions as those agreed with the transferor; see for example Foreningen af Arbejdsledere i Danmark v. A/S Dansmols Inventar [1985] E.C.R at paragraph 15.

27.	United Kingdom legislation should be interpreted as far as possible so as to give effect to, and as intended as to carry out the obligations placed upon the UK by European Community Directives and to give effect to decisions of the European Court of Justice; see British Fuels Ltd v Baxendale [1999] 2 AC 52:- per Lord Slynn of Hadley
“It is common ground that, both under English law and under Community law, the national court should construe a regulation adopted to give effect to a Directive as intended to carry out the obligations of the Directive and as not being inconsistent with it if it is reasonably capable of bearing such a meaning”

28.	The facts giving rise to this case relate to the TUPE Regulations of 1981.  They have since been substituted by the 2006 Regulations.  

29.	Paragraph 2(2) of the 1981 Regulations provides:-
“References in these Regulations to the transfer of part of an undertaking are references to a transfer of a part which is being transferred as a business and, accordingly, do not include references to a transfer of a ship without more.”

A relevant transfer is defined in Regulation 3
“3.-(1)	Subject to the provisions of these Regulations, these Regulations apply to a transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or a part of one which is so situated.
(2)	Subject as aforesaid, these Regulations so apply whether the transfer is effected by sale or by some other disposition or by operation of law……
(4)	It is hereby declared that a transfer of an undertaking or part of one
	(a) may be effected by a series of two or more transactions: and
(b) may take place whether or not any property is transferred to the transferred by the transferor.”

30.	The effect of the application of TUPE is that by Regulation 5(1) and (3) any contract of employment of a person employed immediately before the transfer by the transferor in the undertaking or part transferred, which would otherwise have been terminated by the transfer, “shall have effect after the transfer as if originally made between the person so employed and the transferee.”  It is also made clear in Regulations 3(4) and 5(3) that a transfer may be effected by a series of two or more transactions

31.	For there to be a TUPE transfer there must be the transfer of a structured and autonomous undertaking amounting to a stable economic entity at the time of transfer. 
32.	Authoritative guidance on the identification of such an entity was given by the European Court of Justice in such cases as Spijkers v Gebroeders Benedik Abbatoir CV [1986] ECR 1119 and Suzen v Zehnacaker Gebaudereinigung GmbH Krankenhasservice [1997] IRLR 255.

33.	In the present case the Employment Tribunal followed the decision of the EAT in Cheesman v Brewer Contracts (to which I have already referred).  In that case Lindsay J helpfully set out the relevant criteria to determine whether an undertaking exists or not, distilled from various decisions of the European Court of Justice.  

34.	It is helpful to note the following principles, which again are not controversial and are derived from Süzen: 

(a) there is no need, in order for the directive to be applicable, for there to be any direct, contractual or relationship between the transferor or the transferee.  The transfer may also take place in two stages, through the intermediary of a third party such as the owner or the person putting up the capital; (Süzen at paragraph 12)

(b) for the directives to be applicable, however, the transfer must relate to a stable economic entity whose activity is not limited to performing one specific works contract (Rygaard [1995] ECR I-2745, paragraph 20) 

(c) the mere fact that the service provided by the old and the new awardees of a contract is similar does not, therefore, support the conclusion that an economic entity has been transferred.  An entity cannot be reduced to the activity entrusted to it; Süzen at paragraph 15.

35.	Against this background I turn to consider the principal question raised on the Claimant’s appeal.  Did the Employment Tribunal err in law in concentrating examination of whether a stable economic entity existed in relation to the performance of the Aer Lingus contract by Swissport prior to insolvency only rather than at the time of the putative transfer?  The matter was put graphically by Mr Clarke; “a correct or permissible way to determine the question of whether on fragmentation a stable economic entity evolved from “primordial soup” is to consider whether a bundle of resources, manpower, assets [and he would add organisation/management] can be found dedicated to the transferee.”

36.	It is necessary to consider the principal authority on the question, Fairhurst Ward Abbotts Limited v Botes Building Limited [2004] IRLR 304.  The facts of that case are of some importance.

37.	The London Borough of Southwark (“Southwark”) had let a major contract, (the Major Voids Contract) to Botes, for the supply of building maintenance across the borough.  Southwark decided to divide the borough into two halves in the context of a competitive tendering process.  Botes lost its contract for the supply of building maintenance services for the whole of the borough and Fairhurst successfully tendered for the supply of such services in one of the two areas into which the borough had been partitioned for the purposes of the re-tendering process. 

38.	Under both contracts, that let to Botes and that subsequently let to Fairhurst, the contractors would provide organisation, administration and supervision. They were also to provide labour, materials and equipment.

39.	There was no transfer of assets by Botes to Fairhurst.  The activity of Fairhurst in area 2 (the area in respect of which it had successfully tendered) continued to be the same as the activity previously carried out by Botes under the Major Voids Contract prior to its termination in April 1999.  However, there was no agreed taking-over of the employees of Botes.  Fairhurst refused to take the employees on.  The successful applicants had all worked within the area later designated as area 2.

40.	The Employment Tribunal had found that Botes had organised support, administration and premises dedicated to the original contract across the borough as a whole.  There was, however, no finding that Area 2, which was the subject matter of the re-tendered contract with Fairhurst, existed as a discrete, identifiable economic entity in the hands of Botes prior to April 1999. The Area 2 contract was all that was obtained by Fairhurst as a result of the tendering exercise. It was submitted for Fairhurst that if it was not an economic entity in the hands of Botes, it could not have been transferred as such to Fairhurst. 
  
41.	In the EAT HHJ Burke had said:-

 “We are entitled to take into account that those of Mr Brown, supporting the decision of the Tribunal on this issue, preserve at least to an important extent the purposes and intentions of the Acquired Rights Directive and of TUPE in a situation in which, were the contrary contentions to be preferred, those purposes and intentions would be at real risk not only in cases of second generation contracting out, as in the present case, but on a wider basis. Further, if for there to be a transfer of part of an undertaking, that part has of itself to have been an individual economic entity before the transfer, it would seem that the provisions for protection in the case of a transfer of part of an undertaking would be unnecessary. [41]. We should make it clear that we do not take the view that in every case as a matter of law where an entity is split into parts there will be a transfer falling within Regulation 3 of TUPE; one can envisage circumstances in which the degree of fragmentation might be such that what emerged was not recognisably the same entity or part of the same entity when viewed as a whole and/or in circumstances in which an individual separated part or even all the separated parts were not of themselves stable entities; if the Tribunal so found on the facts, it would not be open to them to proceed to consider whether there was a transfer.”

In his judgment in the Court of Appeal Mummery LJ noted as I have already mentioned that there was no finding that area 2 which was the subject matter of the re-tendered contract with Fairhurst, existed as a discrete, identifiable economic entity in the hands of Botes prior to April 1999.  Accordingly Fairhurst argued that if the area 2 contract was not an economic entity in the hands of Botes, it could not have been transferred as such to Fairhurst.  It was not sufficient if what was transferred was an entity created for the purpose of the transfer, if that entity did not exist before it was created, submitted Fairhurst.  The Court of Appeal did not agree.

42.	Mummery LJ said that it was:-

 “First necessary to identify a "stable economic entity," being an organised grouping of persons and of assets enabling (or facilitating) the exercise of an economic activity which pursues a specific objective. An activity or a service is not in itself an economic entity: the emphasis is on the way in which the work is organised: [para 30].”

43.	It was submitted on behalf of the Respondents that Mummery LJ in that passage had suggested that what was transferred must have been a stable economic entity in its own right prior to the transfer.  In my opinion Mummery LJ was referring to the entity as a whole out of which the parts said to be transferred had been taken.  Such a stable economic entity existed prior to the new contract being let in respect of the whole borough.  Mummery LJ said at paragraph 32:-

 “This case is concerned with the effect of partitioning the borough into two separate areas. As already explained, the Directive and TUPE are capable of applying to the transfer of "part of an undertaking," as well as to the transfer of an entire undertaking. A part of an undertaking is simply something less than the whole of an undertaking. Neither the legislation nor the case law expressly requires that the particular part transferred should itself, before the date of the transfer, exist as a discrete and identifiable stable economic entity. Nor do I think that such a requirement is implicit in the need to identify a pre-existing stable economic entity. In my judgment, it is sufficient if a part of the larger stable economic entity becomes identified for the first time as a separate economic entity on the occasion of the transfer separating a part from the whole.”

44.	Mummery LJ recognised that all cases were fact sensitive.  He quoted with approval from the decision of the Northern Ireland Court of Appeal in Hassard v McGrath and Others [1996] NILR 586 in which the court was concerned with the application of a TUPE situation where an undertaking had been divided into four.  In that case the court had said:-
“There must of course be a point at which the fragmentation is so great that the fragments could not be regarded as distinct parts of the transferor's undertakings. The question of fragmentation will also be material to the second issue in this appeal, namely whether the employee was assigned to the part or parts transferred.”

Mummery LJ concluded at paragraph 36:-

 “The fact that the two areas were previously one entire area covered by one contract prior to April 1999 did not prevent the tribunal from concluding in the circumstances that part of the larger economic entity in the hands of Botes and covered by area 2 was capable of being transferred to Fairhurst, in whose hands it then retained its identity as a part of the larger economic entity.”

45.	It is also helpful to refer to what May LJ had to say at paragraph 55:-

 “The European and domestic authorities to which we have been referred do not address or deal with situations where what is transferred is part of a larger economic entity. Mr Swift has referred us to no authority which positively supports his submission. As the Employment Appeal Tribunal pointed out, if it were correct, it could be used to undermine the purpose of the Directive and the Regulations. In my judgment, there is no reason in principle why a stable economic entity sufficient to be transferred under this legislation cannot be carved out as part of a larger economic entity for the purpose of and at the time of the transfer. It does not have to exist separately as such before it is carved out. It will depend on all the facts and circumstances whether what is carved out is indeed a sufficient economic entity. The Employment Appeal Tribunal reached essentially this conclusion in paragraph 39 of its judgment. In my view, they were correct to do so.”

46.	In this case the argument put forward by Swissport and Aer Lingus was that there could be no transfer if the part said to be transferred was not a stable economic entity when in the hands of Swissport.  Support for this proposition is said to be derived from the passages at paragraphs 31 and 36 in the judgment of Mummery LJ and the citation at paragraph 35 from the judgment in Hassard.  Accordingly it was submitted the Chairman was entitled to stop his investigations once he had found that there was no such stable economic entity in the hands of Swissport that performed the Aer Lingus contract.  This submission seems to me to be contrary to the decision in Fairhurst v Botes that a stable economic entity can exist prior to transfer or fragmentation providing the part said to be transferred could be identified as at the time of transfer as a stable economic entity even if such identification could only be made by or on the transfer.
47.	I agree with the Respondents that the issue is fact sensitive, and as put, a “multi faceted” approach is required.  I also agree that it is necessary to concentrate on the Spijkers criteria to determine if a stable economic entity can be identified.

48.	The Claimant’s case is not without difficulties.  As a matter of practicality it may be more difficult to recognise a stable economic entity after transfer of part of an undertaking if that part undertaking is not self contained in some way so as to constitute itself as a stable economic entity.  In particular as Mr Clarke submitted, there may be difficulty in defining and delimiting the part of the undertaking said to be transferred.  Consideration will also need to be given as to the extent to which administrative and managerial structures have been changed.  However these are all matters of fact and as a matter of principle, I conclude that the Employment Tribunal is bound to consider whether what was not recognised as being a stable economic entity before transfer was capable of being one as at the time of the alleged transfer. 

49.	I am unable to accept the submission that the lack of a bundle of resources, manpower, assets and organisation and management dedicated to the transferee before transfer can be determinative of the issue whether there is a TUPE transfer, regardless of the position as at the date of the alleged transfer when a stable economic entity may be identified.  Accordingly I am satisfied the approach of the Chairman at paragraph 8.1 of his decision was in error.

50.	Mr Segal sought to persuade me that the approach of the Employment Tribunal was flawed and that the Employment Tribunal should have looked at the position as at the time of the alleged transfer and asked whether what may have been an inchoate economic entity had become an actual stable economic entity on transfer.  I have accepted that submission.  Mr Segal, however, went on to submit that had the Employment Tribunal properly directed itself it could only have come to the conclusion that at the time of the alleged transfer there was a stable economic entity that had been transferred.  I was referred to various parts of the evidence pointing (and I put this in a neutral manner) to continuity of the activity in the hands of Swissport, following the criteria set out in Spijkers.  Mr Segal pointed to the fact that work continued without interruption, the same ground handling equipment was used, some of the office accommodation continued to be used, a number of staff categories had been specifically dedicated to the Aer Lingus contract and others were “mainly” dedicated.  On the other hand the Respondents submitted (rather more faintly) that on the basis that the Employment Tribunal had misdirected itself, had it correctly directed itself it could only have concluded that there had been no transfer because it could only have found on the facts that there was never a transfer of a stable economic entity.  

51.	The Respondent sought to uphold the decision firstly on the basis of the insolvency point (to which I shall come later) and again by reference to the Spijkers criteria.  Mr Clarke pointed to the fact that the business carried on by Swissport comprised the provision of services reliant upon equipment.  There was no transfer of tangible assets save for minor office equipment and no transfer of ground support equipment.  In relation to intangible assets no debts were transferred nor were any goodwill leases nor licences.  This was not a case where the majority of employees had been taken on by the new employer and no customers were taken on.  In relation to the degree of similarity between activities pre and post transfer, ground handling services were similar but the management was distinct and handling was now for Aer Lingus only rather than multiple customers.  In relation to the period during which activities were suspended, Swissport’s activities ceased permanently.  Initially Aer Lingus used its own staff and former Swissport employees were first engaged by Aviation Resource on or about 20 November 2004.
52.	Mr Clarke also made the significant point (not really considered by the Employment Tribunal) that as a result of the transfer there was a completely new management financial and administrative structure. 

53.	I made it clear during the course of submissions that I was unable to accept either the Claimant’s, or Respondents’, submissions in this regard.  The issues to which the Employment Tribunal had failed to direct itself were all fact sensitive.  In the circumstances it is inappropriate for me (however tempting) to make findings which should properly be made by the Employment Tribunal.  I see no reason to alter my initial view, although I of course have had regard to the able submissions made to me.  I am unable to say that the Employment Tribunal could only find that there had been a transfer of a stable economic entity or conversely that there had been no such transfer.

Insolvency
54.	I now turn to the argument that was not considered by the Employment Tribunal.  As the Employment Tribunal have decided there was no entity capable of transfer in the hands of Swissport it did not consider the submission that by reason of the insolvency of Swissport there was nothing capable of transfer within the meaning of article 3 of TUPE.

55.	The submission was advanced by Mr Napier QC, supported by Mr Clarke, principally relying upon the decision of the EAT in Perth and Kinross Council v Donaldson [2004] IRLR 121, a decision of the EAT in Scotland presided over by Lord Johnston.  That case decided that the TUPE regulations do not apply in cases of insolvency save in relation to the transfer of part of a business as a going concern.  That was not the case here, it was submitted where Swissport was irretrievably insolvent when placed in administration and there was no question of transfer of anything (save in minor respects) by the administrators.
56.	The issue underlying this submission is whether TUPE properly construed, gave wider protection to employees in the case of a transfer than the Acquired Rights Directive.  Decisions of the European Court of Justice have taken a narrow view of the scope of the directive in insolvency situations and it is accordingly necessary to determine whether or not Parliament intended, and could properly have intended, to extend protection into certain insolvency situations and whether it was empowered to do so under section 2(2)(a) or (b) of the European Communities Act 1972.  I have already set out the terms of the relevant regulations.  It is clear that TUPE is derived from those directives and is intended to give effect to them.  There is also clear authority in the European Court of Justice that the Acquired Rights Directive and its successors did not apply generally speaking to cases of insolvency.  This is clear in particular from the decision of the Court of Justice in Abels v. Administrative Board of the Bedrijfsvereniging voor de Metaalindustrie en de Electrotechnische Industrie (Case 135/83) [1985] E.C.R. 469, E.C.J.  The explanation being, as put by Advocate-General Lenz in Jules Dethier Equipement v Dassy and Sovram [1998] IRLR 266 at para 22:-

“22. According to the court, that interpretation also necessarily followed from consideration of the purpose of Directive (77/187/E.E.C.), namely to ensure that the restructuring of undertakings within the common market did not adversely affect the employees in the undertakings concerned. Since there were major differences of opinion with regard to the consequences, for the protection of employees, of applying the Directive to insolvency proceedings, a serious risk of general deterioration in working and living conditions of workers, contrary to the social objectives of the E.C. Treaty, could not be ruled out. Extending the scope of the Directive to insolvency proceedings might dissuade a potential transferee from acquiring an undertaking on conditions acceptable to its creditors, who would then have to sell the assets of the undertaking separately. That would entail the loss of all the jobs in the undertaking, detracting from the effectiveness of the Directive.”

57.	Advocate-General Lenz did, however, go on to make clear:-

 “23. The court concluded that the member states were not obliged to extend the rules laid down in the Directive to transfers of undertakings, businesses or parts of businesses occurring in the context of insolvency proceedings. The member states were, however, at liberty independently to apply the principles of the Directive, wholly or in part, on the basis of their national law alone: see p. 485, paras. 23 and 24.”
The Court of Justice agreed and I draw attention to paragraph 25 of its decision:-

 “25. It follows from that case law that, in deciding whether Directive (77/187/E.E.C.) applies to the transfer of an undertaking subject to an administrative or judicial procedure, the determining factor to be taken into consideration is the purpose of the procedure in question: d'Urso  [1991] E.C.R. I-4105, 4146, para. 26, and Spano [1995] E.C.R. I-4321, 4347, para. 24. However, as the Advocate General has stated in points 31, 41 and 45 of his opinion, account should also be taken of the form of the procedure in question, in particular in so far as it means that the undertaking continues or ceases trading, and also of the Directive's objectives.”

58.	The Court of Justice has been consistent in holding that the directive will only apply in cases of insolvency where the undertaking has continued to trade or was expected to continue to trade.  It is not applicable to a case in which the insolvency procedure causing cessation of trade is liquidation or some form of administration; see d'Urso v. Ercole Marelli Elettromeccanica Generale S.p.A. (Case C-362/89)  [1991] E.C.R. I-4105, E.C.J.].  That case is also authority for proposition that the decisive test was the purpose of the procedure in question.

59.	In the present case, as I am told is the current practice, the administrators were appointed with all three of the objectives envisaged by the statute, including rescuing the company as a going concern, achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up without first being in administration, as well as realising property in order to make a distribution to one or more secured or preferential creditors.  Nevertheless, the evidence makes it fairly clear that this was a fairly catastrophic or “terminal” insolvency.  Swissport ceased trading immediately and so far as I am aware no part of Swissport was sold as a going concern.  There might be a case, therefore, (although no factual findings were made by the Employment Tribunal) in which if TUPE was construed so as to simply correspond with the directive, a transfer would be excluded if it could be shown that this was a catastrophic or terminal insolvency and that it was not in effect a purpose of the administration for Swissport to continue as a going concern in whole or in any part, to enable the sale of the whole or part of its undertaking to take place.

60.	Two issues are therefore raised.  Firstly as a matter of construction does TUPE apply to a transfer following an insolvency where there is no continued trading? (I use this as a convenient shorthand).  Secondly if TUPE does extend beyond the scope of the directive is there power under the European Communities Act section 2 to so extend it?

61.	Mr Napier QC submitted that applying the dicta in the British Fuel case I should adopt a “narrow” construction.  I see no reason to do so.  I do not consider that reading limiting words into the regulations to the effect that it will not apply in cases of certain insolvencies where there has been no continued trading is in effect a “narrow” construction.  The Claimant has submitted that if the natural construction of the regulations is correct and there is power in section 2 of the European Communities Act to enact the regulations there is no reason why I should not give the regulations their natural meaning.  That was clear from the passages cited in the decisions of the Court of Justice to which I have already made reference. 

62.	It is necessary, therefore, to consider the power to make regulations derived from section 2 of the European Communities Act 1972.  This provides in so far as relevant as follows:-

2	Subject to Schedule 2 to this Act, at any time after its passing Her Majesty may by Order in Council, and any designated Minister or department may by regulations, make provision—
(a)	for the purpose of implementing any Community obligation of the United Kingdom, or enabling any such obligation to be implemented, or of enabling any rights enjoyed or to be enjoyed by the United Kingdom under or by virtue of the Treaties to be exercised; or
(b)	for the purpose of dealing with matters arising out of or related to any such obligation or rights or the coming into force, or the operation from time to time, of subsection (1) above;
and in the exercise of any statutory power or duty, including any power to give directions or to legislate by means of orders, rules, regulations or other subordinate instrument, the person entrusted with the power or duty may have regard to the objects of the Communities and to any such obligation or rights as aforesaid…”

The extent of TUPE’s application in an insolvency was considered by the EAT in Scotland in Belhaven Brewery v Berekis (UKEAT/724/92), (Lord Coulsfield).  In that case it was held that TUPE conferred greater rights on employees than the directive and was capable of application in all cases of insolvency.  A transfer on insolvency or consequent upon insolvency was within the meaning of the regulations because transfers consequent on insolvency were not excluded.  Lord Coulsfield observed:-

 “As the Industrial tribunal pointed out, the Directive does not prevent a member State from conferring greater rights on employees than those which are laid down in the directive and, although it has been held that it may be appropriate to refer to a directive in order to extend the scope of regulations made, ostensibly in order to give effect to that Directive, we were not referred to any authority in which the clear meaning of regulations has been restricted by reference to a Directive.”  

63.	Mr Napier QC, as I have mentioned, relied heavily on the decision of the EAT in Perth & Kinross Council v Donaldson to which I now turn.  Lord Johnston explained the approach that he considered should be adopted to construction of the TUPE regulations.  He said at paragraph 5:-
“5. With regard to the first issue,[ Was the transfer one which could fall within the scope of TUPE] a very material question of law arises which does not seem to have been decided authoritatively in the United Kingdom.  The broad issue is whether or not, when a European Directive is implemented by subsidiary legislation of the United Kingdom Parliament, under section 2 of the Treaty of Rome Act 1972, can the relevant Regulations be intra vires if the effect of those Regulations brought in by the UK Parliament is to widen the scope of the Directive which it is seeking to implement.  This Tribunal focussed on this matter in Addison v Denholm Ship Management (UK) Ltd [1997] IRLR 389, commenting critically upon a case R v Secretary of State for Industry ex parte UNISON [1996] ICR 1003.  This Tribunal stated in this context “the child cannot be larger, wider or have greater implications than its parent allows.”

64.	After considering the factual background Lord Johnston concluded at paragraph 19:-

“19.	We approach the matter upon the basis it is the primary duty of a liquidator to ingather and dispose of assets for the maximum benefit of creditors.  It seems to us, that if he has to look over his shoulder at the TUPE Regulations, this might well fetter the extent to which he might perform this duty.  We do however recognise that in receivership or administration, there may be an opportunity for the Regulations to apply if the business is sold on provided it is so done as a going concern and this is very important.  Whatever may be the position of a liquidator with regard to the sale of the business as a going concern, when it comes to irretrievable insolvency and cessation of business, we are satisfied that European jurisprudence does not admit the application of the ARD Directive.  If it is to be suggested that TUPE has effectively allowed the Directive to operate in that context we consider that it falls foul of the approach that we adopted in Addison to the effect that it is going beyond the scope of the Directive and would therefore in that respect be ultra vires.  The issue requires to be addressed by primary legislation.”

65.	In the circumstances Lord Johnston declined to follow the decision in Belhaven Brewery v Berekis.

66.	I am satisfied that on a simple construction of the words of regulation 3 of TUPE (and ignoring the purpose of the directive and issues as to the powers given by section 2 of the European Communities Act) I see no reason why it cannot apply in an appropriate factual situation to any transfer whether consequent upon a “catastrophic” or “terminal” insolvency or not.  That is to say I can see no reason why TUPE cannot apply where the facts are such as to justify a finding that there has been a transfer of a stable economic entity, even where the transferor has not continued trading and there has been no sale or transfer of part of the transferor’s undertaking as a going concern.  There is nothing to exclude such cases in the simple language of the regulations.  

67.	I bear in mind when construing TUPE that its principal purpose is to protect the rights of workers although the Court of Justice has held that transfers in the case of insolvency are excluded because the effect of TUPE might be to inhibit potential transferees from coming forwards. This might lead to the sale of assets and undertakings separately entailing a greater loss of jobs.  I do feel bound to note, however, that the inhibiting effect of the directive as construed by the Court of Justice, on potential purchasers would seem to apply in the very cases of insolvency to which it is accepted the directive might apply, i.e. the sale or transfer of the business or part of the business in an insolvency, as a going concern.

68.	It is clear that the directive does apply in certain insolvency situations, as accepted by the Court of Justice; this was pointed out by HHJ Mackie QC in Re Maxwell Fleet and Facilities Management [2001] IRLR 368.  The regulations include provisions specifically designed to protect workers and grant TUPE protection in the case of insolvency in the cases of “hive down” agreements; see regulation 4.

69.	With these matters in mind I approach what Lord Johnston had to say in Perth & Kinross Council v Donaldson on the appropriate approach to construction of regulations that go beyond the purpose of a Directive.  I have to say that I was initially attracted by Mr Napier’s submission and had provisionally concluded having regard to the decision in Colchester States (Cardiff) v Carlton Industries PLC [1986] Ch 80 that I should follow Lord Johnston’s decision in Perth & Kinross Council v Donaldson.  Had I done so, despite the submission from the Respondents that I would be bound to find as held in that case, that the construction of TUPE excluded terminal insolvencies and that accordingly on the facts this was a case in which there could be no transfer within the meaning of TUPE, I would not have acceded to that submission, I would have remitted the matter to the Employment Tribunal because no facts were found by the Employment Tribunal and the issue is fact sensitive.

70.	However, since completion of the oral submissions the parties produced further submissions and referred to the decision of the Court of Appeal in Oakley v Animal [2006] Ch 337 [2005] EWCA Civ 1191.  The case concerned sunglasses as Jacob LJ put it at paragraph 48:-
“Who would have guessed that a pair of fashion sunglasses could lead to a case of such constitutional importance that the Government found it necessary to intervene by its chief law officer, the Attorney General? But it has. Rather as the first case about the Rome Treaty to reach this court "came about because of a tin can" (per Lord Denning MR in Appn des Gaz v Falks Veritas [1974] Ch 381 at p.368).”

The Court of Appeal had to consider the extent of the power under section 2 of the European Communities Act to bring the directive into force, and particularly how narrowly the words “arising under” and “in relation to” needed to be construed.  This decision is of course heavily relied upon by Mr Segal. 

71.	Waller LJ pointed out that section 2 is sui generis; unlike other provisions allowing for the amendment of primary legislation by secondary legislation, it flowed directly from the Treaty Obligations of the United Kingdom.  Thus there was no need to construe it narrowly as one would in “Henry viii” clauses, a point repeated by Jacob LJ at paragraph 70.  He said that this was:-

“a sui generis piece of legislation whose general purpose, bringing into our law European Community law, is paramount. It seems to me that the approach to the regulation making power should be driven by that idea, given that the UK's obligation under the Treaty is to "take all appropriate measures … to ensure fulfilment of the obligations .. resulting from action taken by the institutions of the Community" (Art.10).”

72.	Waller LJ referred to Otton LJ’s dicta in R v Secretary of State of Trade and Industry ex p. Unison [1996] ICR 1003 in a judgment with which Newman J agreed at 1014 Fh as follows:-
"Against this analysis I am satisfied that the applicants have not advanced a sound basis for limiting the scope of the phrase "relating to" in section 2(2)(b) of the European Communities Act 1972. I reject the alternative meaning suggested by Mr Langstaff of "tangential to or consequential." This is not the language of the Directive or the United Kingdom legislation. I see no reason not to give the phrase "relating to" or "related to" any meaning other than its natural, everyday meaning. Thus I am satisfied that the obligation to consult a trade union in regard to one redundancy is related to a Community obligation, and not distinct, or separate, or divorced from it."

73.	Waller LJ at paragraph 39 considered and rejected the approach taken by Lord Johnston in the Perth & Kinross Council v Donaldson case and indeed rejected it in plain terms as follows:-

 “Lord Johnston's opinion as to the ambit of the Section is not in my view right. Furthermore I can see nothing in the wording of the Section which would support the view that in some way a policy decision or a significant policy decision is automatically excluded from the ambit of Section 2(2)(b). At the same time I do not for my part equate the words "related to" or "arising from" in this subsection with "not distinct, separate, or divorced from" (the language used by Otton LJ). I would endorse his words that they should be given their natural meaning but as we know context means everything. That context is the bringing into force under Section 2 of the laws, which under the Treaties the United Kingdom has agreed to make part of its laws. The whole section is clearly primarily concerned with that obligation and the primary objective of any secondary legislation under Section 2(2) must be to do just that. Section 2(2)(b), and the words "arising from " and "related to" take their context from that being the primary purpose of Section 2. It seems to me that Section 2(2)(b) from its position in Section 2, from the fact that it adds something to both subsection (1) and (2), and from its very wording is a subsection to enable further measures to be taken which naturally arise from or closely relate to the primary purpose being achieved. I accept that I will be accused of adding the words "naturally" and "closely", but I believe that describes the context which provides the meaning of the words.”

74.	May LJ was reluctant to engage in redefinition in the abstract but he agreed that the approach of Lord Johnston should not be followed at paragraph 47:-

 “47.	I do not consider that to hold that the making of these transitional provisions came within section 2(2)(a) has the effect of making section 2(2)(b) devoid of content. There is a distinction between providing something which, although it is a choice, is a choice which the implementation of the Directive requires you to make, and one which is not so required, but which has the effect of tidying things up or making closely related original choices which the Directive does not necessarily require. Section 2(2)(b) is confined by its words and context. Redefinition in the abstract is to be avoided. I would refrain, therefore, from deciding whether the passage in the judgment of Otton LJ in R v Secretary of State for Trade and Industry ex parte Unison [1996] ICR 1003 at 1014F-H, quoted by Waller LJ in paragraph 34 of this judgment, correctly interprets and applies section 2(2)(b). But I respectfully agree with Waller LJ that the opinion of Lord Johnson in Addison v Denholm Ship Management (UK) [1997] ICR 770 at 785C-F, quoted by Waller LJ in paragraph 35 of his judgment, is not correct.”

75.	For the sake of completeness I would point out that Jacob LJ also agreed at paragraph 79 and paragraph 80:-

 “79.	My own view, provisional though it must be in the absence of any specific context relevant to this case, is this: that s.2(2)(a) covers all forms of implementation – whether by way of choice of explicit options or by way of supply of detail. Both of these are "for the purpose of implementing" or "enabling any such obligation to be implemented". Supplying detail required by a Directive is just that. 
80.	So s.2(2)(b) indeed adds more and Lord Johnston was wrong to say that it could not. How much more must depend on the particular circumstances of the case – the statutory language is the guide. It says "for the purpose of dealing with matters arising out of or related to". Whether a particular statutory instrument falls within those words must depend on what it purports to do and the overall context. One cannot put a gloss on the meaning. If Otton LJ was adding a gloss – "distinct, separate or divorced from it" – then I do not agree with that gloss. You just have to apply the statutory language to the case concerned. And in doing so you bear in mind that the purpose of the power given by the section is European – the Art.10 purpose. Whether or not Otton LJ was right in the circumstances of Unison, I, like Lord Johnston, do not decide. It would not be right to do so in the absence of the affected parties.”

76.	The decision in Oakley v Animal, in my opinion, fatally undermines the authority of Perth & Kinross in so far as is relevant to the construction of the TUPE regulations.  I can see no reason to give a meaning to the regulations other than their plain and ordinary meaning to which I have already referred.  There is no reason for reading in any restriction.  In my opinion the regulations are made applicable to a wider set of circumstances than the directive because they deal with matters “arising out of” or “relating to” the implementation of the Community obligation to give effect to the directive.

Conclusions
77.	In the circumstances and for the reasons I have given I have concluded that the appeal in relation to the time at which the stable economic entity must be found to exist is allowed.  The Chairman should not have concentrated only on determining whether a stable economic entity could be discerned prior to Swissport’s being placed into administration in relation to its contract with Aer Lingus.  The Chairman should have considered the position as at the date of the putative transfer. 

78.	In so far as the cross-appeal is concerned for the reasons I have given this appeal must be dismissed.  I do not consider that regulation 3 of TUPE should be construed in such a way as to exclude cases of transfers occurring in insolvency situations, even where the administrators have neither carried on the business in question nor transferred any part of it as going concern.  I am prepared to give permission to appeal on the cross-appeal if an application is made to me within 14 days of the date the judgment is handed down.

79.	I have considered the decision of the EAT in Sinclair Roche & Temperley v Heard [2004] IRLR 763.  I cannot see any benefit in remitting the case for rehearing by the same Chairman. It will be necessary for evidence to be taken again at least in relation to the insolvency point and in all the circumstances, although I have no doubts as to the professionalism of the Chairman it seems more appropriate for there to be a rehearing before another Chairman.  It also might be considered inappropriate to remit in a case where the Chairman has failed to follow Fairhurst v Botes, although it was cited to him, when his failure to follow that case lies at the heart of the successful appeal.