The claimants were employed by the first respondent, the alleged transferor, in the original set of proceedings. It was alleged that the second and third respondents were the transferees. The claimants reached a compromise with the first respondent and settled their claims out of court. The claimants maintained that this compromise agreement only released the first respondent and that their claims against the other two could still go ahead. The EJ came to the conclusion that this was a release by one of three joint and several debtors and that the release of the first respondent released all three. The claimants appealed.

The EAT upheld the appeal. The agreement was not a release but a covenant not to sue. The construction of the agreement and the joint letter itself pointed to the conclusion that there was an express covenant with the first respondent but no release of the other tortfeasors.

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Appeal No. UKEAT/0046/12/BA

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX

At the Tribunal

On 31 August 2012

Before

HIS HONOUR JUDGE McMULLEN QC; BARONESS DRAKE OF SHENE; MS N SUTCLIFFE

(1) TAMANG; (2) WELILAKA (APPELLANTS)

(1) ACT SECURITY LTD; (2) EURO STORAGE UK LTD (RESPONDENTS)

Transcript of Proceedings

JUDGMENT

For the Appellants
MR M McDONOUGH (Solicitor)

McDonough & Associates
Premier Business Centre
47-49 Park Royal Road
London
NW10 7LQ

For the First Respondent
Debarred

For the Second Respondent
MR C MacEVILLY (of Counsel)

Instructed by:
Robert Callen Solicitors
Elthorne Gate
64 High Street
Pinner
Middlesex
HA5 5QA

PRACTICE AND PROCEDURE

Compromise

Disposal of appeal including remission

The Claimants made a compromise agreement with Reliance, one of three Respondents in a TUPE claim. The claim was against the Respondents jointly and severally for breach of the consultation provisions and against the transferee for unfair dismissal and wrongful dismissal. The Employment Tribunal wrongly construed the agreement with Reliance as a release of all three tortfeasors for it related only to Reliance and by implication not to the others. On its true construction it was a covenant not to sue Reliance and not a release of all Respondents. The case was remitted for hearing as against the other two Respondents who were given permission (the Claimants not objecting) to enter responses and to be heard, hitherto debarred.

1. This case is about the construction of a settlement agreement, organised by ACAS. This is the Judgment of the court to which all members appointed by statute for their diverse experience in the specialist field have contributed. We will refer to the parties as the Claimants; and ACT Security Ltd, Reliance (now known as Securitas Security Services UK Ltd), and Euro Storage UK Ltd as the Respondents.

1. It is an appeal by the Claimants in those proceedings against a Judgment of Employment Judge Jack sitting alone at Watford sent with reasons to the parties on 26 September 2011. The Claimants were represented by a solicitor, and today the principal in the firm, Mr McDonough, appears for them. None of the Respondents was represented; ACT and Euro had been debarred because of their late presentation of their responses, and Reliance had been released by a compromise agreement. The Claimants contended that they can maintain their proceedings against ACT and Euro; the Judge decided against them on the basis that there had been a compromise of all of the claims the Claimants wished to make against all three Respondents. The central issue therefore was the determination not of the underlying facts of the case but the decision by the Claimants to compromise their proceedings against Reliance. The Judge decided, by reference to the authorities, that the compromise with Reliance was also a release of the other two Respondents; the Claimants appeal. Directions sending this to a full hearing were given by HHJ Birtles.

1. The Claimants were security guards employed by Reliance at a site at Wembley. The whole of the site was leased by its owner, Segro, to Euro on 1 April 2010. The two Claimants worked at the gatehouse. There were three of them, in fact; only two are in the proceedings. To their surprise, on 1 June 2010 they were told that they would not be working for Reliance any more for ACT had taken over on the site. So, the primary case brought by the Claimants was against ACT and/or Euro – they did not know which – as the transferees of a service provision change under Regulation 3(1)(b) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). They also maintained claims under the consultation Regulations 13 16. That was the claim that they brought initially against ACT and Reliance; Euro was added at a later stage. An amendment to the proceedings was made by Mr McDonough effectively bringing Euro within the same category as ACT, contending that Euro and/or ACT and/or Reliance were jointly and severally liable for the respective wrongs under TUPE.

1. Understandably, the Employment Judge, in the absence of any representations from the Respondents, was concerned to investigate himself the effectiveness of an agreement to release Reliance made by each of the Claimants. A compromise agreement under the wing of ACAS is effective to settle claims at an Employment Tribunal: Employment Rights Act 1996 section 203. He considered the law as set out in Chitty on Contracts: 30th Edition, and came to the conclusion that this was a release by one of three joint and several debtors and that the release of Reliance released all three. That finding is challenged. The Judge made no finding as to whether there was a relevant transfer. He found that there was a dismissal, and we infer that that was by Reliance of its two employees. The dismissal, were there found to be a transfer, would be disarmed, for the Claimants would then go on to be employed by ACT or Euro.

1. We will deal with the issues and arguments in the way in which they were put to us. The agreement, which is the same in the case of each Claimant, is made in respect of the proceedings. The proceedings are defined as being against Reliance. The settlement includes payments to them of, respectively, £3,696 and £2,956. The release is comprehensive; it is in the following terms:

"4. The Claimant accepts the Settlement of Payment in full and final settlement of the Proceedings and of any claim he has or may have against the Respondent and/or the Group or any of their officers, staff or agents arising out of his employment or its termination or transfer to a third party including as non-exhaustive examples, any claim for a protective award for failing to consult, unfair dismissal, wrongful dismissal, breach of contract howsoever arising, discrimination or victimisation of any kind, redundancy pay, unlawful deductions from wages."

1. Accompanying the release is a letter written by the solicitors for Reliance and for the Claimants, and in it there is the following passage:

"The parties hereby request that the Employment Tribunal dismiss claim no: 3303259/2010 (the Proceedings) against Securitas Security Services (UK) Limited only, under rule 25A of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 following withdrawal of the Proceedings as a result of a settlement being reached through ACAS.

The parties confirm their understanding that, the effect of withdrawal will be the dismissal of the Proceedings."

1. This, we hold, is a clear and valid discharge of Reliance from any harm that the Claimants could do to it in the proceedings. The proceedings are essentially a claim of unfair dismissal, wrongful dismissal and failure properly to carry out the consultation/information provisions of TUPE. The question is: what kind of release is it? The text in Chitty, Vol I 17-017 to 020 is as follows:

"Release, accord and satisfaction and covenant not to sue

The discharge of one joint debtor by a release in a deed or by accord and satisfaction discharges all in accordance with the general principle that joint liability creates only on obligation and the same is true, illogical though it may seem, if one joint and several debtor does not discharge the others, though it may leave the covenantee liable to pay contribution to the other debtors and thus deprive the covenant of some of its apparent effects. The courts generally construe a release as a covenant not to sue if it contains the indication of intention that the other debtors are not to be discharged. Moreover, even in accord and satisfaction with one joint or joint and several debtor, will not discharge the others if the agreement expressly or impliedly provides that the creditor's rights against them shall be preserved.

The distinction between a release and a covenant not to sue rests on the intention of the parties. A release involves total destruction of the debt or claim, a covenant not to sue implies that the creditor undertakes not to take proceedings against the debtor in question (the covenantee) while not necessarily abandoning his rights against any other party liable. In this context, the term 'covenant' does not bear its traditional meaning of a promise in a deed, but extends to any promise.

In practise, the difficulty normally arises from the fact that, in making the agreement, the parties have overlooked the position of co-debtors and it is not clear whether the creditor intends to preserve his rights against them or not. If the agreement appears from its words to be a release and there are no words reserving rights against the other debtors nor anything in the circumstances to rebut the prima facie meaning of the words used, the agreement will release all the debtors but it would seem that the courts lean in favour of other debtors not being discharged by construing the agreement as a covenant not to sue or as a release, but subject to an implied reservation of rights against other debtors."

1. Mr McDonough accepts that legal principle, so that if this claim is a release of one party who is a joint and several tortfeasor, it will release all of them, and therefore these proceedings are at an end. There can be no doubt that this was a release of Reliance. The question is: was this a release of joint and several debtors? There is in the "pleaded" case of the Claimants a separate and sequential series of contentions. The primary allegation is that there was a service provision change from Reliance to either ACT or Euro. If so, that will create liability by a transferee for the wrongs of the transferor, and that is sequential; they cannot co-exist. When the European Union created its first directive, it allowed member states to impose liability on both a transferor and a transferee, but the form of adoption by the UK was to impose it in sequence so that liability passed by Regulation 4 for all the liabilities in respect of the employee of the transferor to the transferee. That occurs in most cases except, for example, where there is an objection by the employee.

1. The second aspect of the claim was that there would be liability by both the transferor and the transferee for a breach of the consultation/information provisions. In this claim there is an express invocation of the joint and several liability (see paragraph 14 of the claim form); that is, between Reliance and ACT and, by amendment now, ACT or Euro. There are two separate sets of complaint: complaint in respect of unfair dismissal, as to which only one party can be liable, and that is the transferee; and complaint of breach of the consultation/information provisions, as to which there is joint and several liability.

1. Mr McDonough's contention is this is not a release but is a covenant not to sue, as explained by Chitty, and he makes two point for this. The first is the use of the word "only" in the letters written by the solicitors to the Tribunal. It is plain, he says, that there is withdrawal against Reliance and an invitation to the Tribunal to dismiss it from the proceedings. Secondly, he draws attention to the fact that the proceedings defined in the body of the compromise agreement are proceedings only in respect of Reliance. The whole purpose of the agreement was to settle with Reliance in respect of the claims that are contained within the claim form. With some force Mr McDonough asks what the point is of a settlement in such monetary terms as against Reliance when on his case Reliance was not the main tortfeasor. It is a claim against a transferee, for his primary case on behalf of his clients is that there was a transfer or service provision change. If so, the lion's share of liability for unfair dismissal, wrongful dismissal and failure to consult lies with a transferee. He asserts that this agreement was made to let Reliance out of those parts of the proceedings where there was a claim weighed against it, and that would be about breach of the consultation/information provisions. As he graphically points out, compensation for unfair dismissal of these two men would likely be in excess of the figures compromised.

1. It is not for us to go into the merits or the value of this settlement – that is the whole purpose of a negotiation under the eye of ACAS, particularly as the parties have legal advisers – but it is part of the context in which we view the wording of this document. In our judgment, the limitation in this settlement is express; it is against Reliance only. That is also plain from the definition of the proceedings. There is no express reference to the other one, at that stage, or two Respondents, ACT and Euro. The intention of the parties is to be gleaned from the words they use; the parties were Reliance and the two Claimants. Although there is not an express invocation of the other joint tortfeasors, the passage in Chitty at 17-020 is relevant. There is often a difficulty when in making the agreement the parties have overlooked the position of the co-debtors, and it is not clear whether there is any reservation against the other joint tortfeasors.

1. In our judgment, the construction of the agreement and the joint letter itself point to the conclusion that there was an express covenant with Reliance but no release of the other tortfeasors. That is the way in which the document was interpreted by the Tribunal when it reinstated the claim, or continued the claim, to be heard at the Tribunal as against ACT and Reliance.

1. Mr MacEvilly for Euro accepts that this is a matter of construction and a matter for us to determine. We hold that the Judge was wrong in his approach to this, and indeed Mr MacEvilly accepts that the Judge was wrong in paragraph 9 of his Judgment, when he held,

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"If there is a transfer, then liability of the transferor and transferee is joint and several."

The Judge did not cite Regulation 4 which makes clear that liability passes from transferor to transferee. The context in which that passage occurs within paragraph 9 is dismissal; there is only one construction of it, and it shows the Judge was in error. We consider that the Judge's approach to joint and several liability was affected by that misdirection. It may be that if he had recognised, by citing the Regulation 4, that there was no joint and several liability for dismissal, he would have taken a different view of the document.

1. The Judge miscategorised the compromise agreement. This was, by reference to the intention of the parties and the words used, a covenant not to sue Reliance, while maintaining, however, the case against the other two. We invited Mr McDonough and Mr MacEvilly to look at the reality and the utility of the case being remitted. It may be that the monies paid to the Claimants will be brought into account by a Tribunal when it considers what is appropriate, or what is just and equitable, to award to them if they succeed in their case that there was a service provision change. If there was not a change, then the case would be entirely covered by the settlement with Reliance.

1. The case therefore has to be heard by the Employment Tribunal for it to make findings. Reliance is no longer part of the proceedings. We consider that ACT and Euro should be part of these proceedings. In accordance with the overriding objective, their absence from the proceedings would be a grave disadvantage to the Employment Tribunal which hears this case. We have heard clear and very helpful submissions by Mr MacEvilly, which will be of assistance to the Employment Tribunal if Euro is there. We can understand Euro's irritation at being brought to the EAT in the light of what it thought was a compromise discharging it, but now that it has failed to uphold the Judgment, Mr MacEvilly welcomes the opportunity for Euro to be back in the proceedings to have its say. The same would apply to ACT. We have all the powers of the Employment Tribunal: Employment Rights Act 1996 s 35(1). Although there is no specific application before us, we hold that the correct disposal of this case is to restore ACT and Euro to the proceedings before the Employment Tribunal. There are already draft ET3s in place for both of them, and they will be accepted. Whether they attend is a matter for them, but they are now back in the case as Respondents. Reliance is discharged and shall no longer appear on the proceedings.

1. It is not necessary, therefore, for us to consider the detailed arguments that Mr MacEvilly put in front of us that there was no service provision change in any event. For this he relies on [Hunter v McCarrick]() [2012] ICR 533, which is to be heard on appeal to the Court of Appeal in October, and he also relies on [Taurus Group Ltd v Crofts and Anor]() [2012] UKEAT/0024/12. Had we found it necessary to consider the hypothesis that there was no transfer or service provision change, we would have been minded to follow both of those cases and to leave an opportunity for Mr McDonough to make an application for permission to appeal if the Court of Appeal overturned Hunter, but it is not necessary for us to make a decision on that in the light of the clear decision we have made.

1. There will be an order that the Claimants make contact with ACAS and see if a compromise can be reached as between the remaining four parties in this case, the Claimants, Euro and ACT, and report to the Employment Tribunal within 28 days on steps taken and an application to the Tribunal to restore this. It will be a matter for the Regional Employment Judge to decide on the constitution of the Tribunal.