in the cause










Pursuer: Grant-Hutchison; Thompsons

Defenders: Robertson; Dundas & Wilson, C.S.


2 March 2000


The pursuer was formerly employed by Clyde Shaw Limited ("the Company"). The defenders were appointed joint receivers of the Company on 4 February 1994. On 11 March 1994 the defenders served a notice of redundancy on the pursuer, and in pursuance of that notice his employment with the Company terminated on 29 April 1994. In this action the pursuer raises two issues concerning the payments to which he was entitled on the termination of his employment. The first concerns his entitlement to pay in lieu of notice. In the event it was admitted, in terms of paragraph 1 of the Joint Minute (No. 31 of process), that in addition to the payment which he received at the time the defenders were liable to make payment to him of a further sum of 170. The second issue concerns the amount of the redundancy payment to which he was entitled. At the time he received a redundancy payment of 4100, calculated on the statutory basis. He contends, however, that in terms of his contract of employment with the Company he was entitled to an enhanced redundancy payment. The defenders do not dispute that, if he did have such a contractual entitlement, they are liable to make good the difference between his contractual entitlement and the sum which he received. The dispute which was the subject of the proof which I heard related to whether the pursuer was correct in his contention that he was entitled to an enhanced payment. The amount concerned is relatively small. In the end the additional sum which was contended for was only 1696. From the outset, however, the case proceeded on the basis that a number of other former employees of the Company were in the same position as the pursuer, and that the resolution of the issue raised by the pursuer in this action would enable the claims of those other former employees to be determined.

The Parties' Contentions

Although the pursuer's pleadings are not particularly clearly expressed, the primary contention advanced on his behalf was that on a sound construction of a collective agreement entered into between the Company and the trade unions representing its workforce on 20 November 1985 (No. 6/3 of process), which formed part of the pursuer's individual contract of employment, he was entitled to a redundancy payment enhanced in respect that the amount fell to be calculated by reference to his actual weekly earnings averaged over the thirteen weeks before the date of his redundancy. The defenders did not dispute that that collective agreement formed part of the pursuer's contract of employment, but contended that on a sound construction it did not in the events which happened entitle him to the enhancement claimed. The pursuer also advanced a subsidiary submission to the effect that prior to the collective agreement made on 20 November 1985 there formed part of his contract, implied as a matter of custom and practice, a term entitling him to such enhancement. Various submissions were advanced on the pursuer's behalf as to how such an implied term might remain relevant to the issue in dispute even after the collective agreement was entered into in 1985. The defenders' position was that no such implied term had formed part of the pursuer's contract before 20 November 1985.

The History of the Pursuer's Employment

The pursuer was born on 26 December 1955 and is therefore 44 years of age. He is a turner to trade. In January 1971 at the age of 15 he entered the employment of the British Steel Corporation ("BSC") at their Craigneuk Works ("the Works"). He remained continuously in the employment of BSC and their successors as owners and operators of the Works until the date of his redundancy on 29 April 1994.

In about 1984 the Works were taken over by the Company. At that stage the Company was a joint venture between BSC and a company (Shaws) based in Middlesbrough. In about 1988 there was a management buy-out, and BSC ceased to have an interest in the company. Neither of these events affected the continuity of the pursuer's employment, nor did they result directly in any change to the terms and conditions of his employment (at least so far as those are relevant to the present dispute).

The 1985 Collective Agreement

On 20 November 1985 representatives of the management of the Company and representatives of the trade unions representing its employees signed a collective agreement, a copy of which is No. 6/3 of process. The document is headed "AGREEMENT FOR HANDLING REDUNDANCIES". It provides:

"As and when it is necessary to make employees redundant the following agreed guidelines shall be used for handling the situation: ..."

There then follow provisions dealing with the giving of various periods of notice, depending on the number of employees to be made redundant, and the method of selection for redundancy. The document concludes with the following provision:


"REDUNDANCY PAYMENTS: (Over Two Years' Service)



involving less than Fifteen Employees:



payment will be calculated on actual earnings;



wages (at statutory levels), in lieu of notice, and recognition of service, may be items for negotiation;



involving over Fifteen Employees:


payment to be negotiated."

It was not disputed by the pursuer that the total number of employees of the Company made redundant on the date on which he was made redundant was more than fifteen. It was therefore common ground between the parties that the applicable part of the provision of the collective agreement which I have just quoted was paragraph (ii). The dispute related primarily to the proper construction of that provision. The pursuer's contention was that, having regard to the history of how redundancies had been handled prior to that date, and having regard to the objectives of the agreement, paragraph (ii) was to be construed as providing for the possibility of negotiation of a higher figure than that provided for (in the case of redundancies involving fewer than fifteen employees) in paragraph (i)(a), but as not contemplating the negotiation of any lower figure than that. The defenders' contention was that paragraph (ii) provided for negotiation without any limit other than that set by the statutory minimum redundancy payment.


Evidence of Practice before 1985

The pursuer gave some anecdotal evidence about earlier redundancies of which he was aware. His brother was made redundant from the Works in about 1983. His redundancy payment comprised (i) a sum calculated by multiplying his weekly wage by the number of years of his employment with BSC, and (ii) a lump sum ex gratia payment in addition. The pursuer could not say whether, in the first element, the calculation was based on the highest wage in the last thirteen weeks, or the average wage over the last thirteen weeks, but he was sure that, whichever basis was adopted, it involved the actual wage, not reduced by any statutory cap. When the Company took over from BSC in 1984, there was, the pursuer said, some concern among the workforce about whether there would be changes in the terms of their employment, but they were assured that they remained the same. There was never any suggestion that future redundancy payments would be confined to the statutory minimum.

John McKenna worked at the Works, in the employment of the Company and its predecessors, for a total of about twenty-seven years until 1994. For twenty-five years he was a shop steward of the trade union to which the pursuer belonged, and he was works convenor for the last ten years before the Works closed. He was, in those capacities, involved in such negotiations about redundancies as took place locally. Asked about redundancies that had taken place between 1970 and 1985, he said that the structure of the payment had varied according to the nature of the event (e.g. mill closure, works closure or productivity agreement). Mr McKenna said that the ordinary redundancy payment was calculated on the basis of one week's wage for each year of service, except that for service after the age of 42 there was allowed 11/2 weeks' wage for each year of service up to a maximum of thirty. Mr McKenna did not recall how the week's wage was calculated. In addition to that ordinary payment, there might be an additional amount, typically between sixteen and twenty-six weeks' wages, depending on the scale of the redundancy; the tendency was for the addition payment to be higher where the scale of the redundancies was greater.

Robert Wallace was latterly Chief Engineer of the Company. He had started work in the steel industry in 1950 with the Clyde Alloy Steel Company, had been with BSC from 1968 and had transferred to the Company in 1984. He had had some involvement in industrial relations when with BSC, although there he always had the assistance of specialist industrial relations personnel. Those specialist personnel were dispensed with in 1984, and he became more directly responsible for industrial relations thereafter, although he was answerable to Mr Chappell, the managing director. His evidence relating to practice before 1985 was that at BSC the cap on earnings which is taken into account in calculating the minimum statutory redundancy payment was never in practice applied. The payment made was always in excess of the statutory minimum. The basic element of the redundancy payment was always calculated by applying the appropriate multiplier derived from the length of the employee's service to the average of his actual earnings over the last thirteen weeks. The basic element was generally calculated by wages department personnel without special instruction. There was generally an additional lump sum over and above the basic payment so calculated. In cross examination he acknowledged that with BSC he was not directly concerned with the negotiation of redundancy payments. His knowledge was based on what "the boys going out the door" told him about the amounts they had received and how they had been calculated.

Mr Chappell entered the employment of BSC in 1967. He came to Craigneuk Works in 1979 as General Manager of it and several other works. He explained that when there were large scale redundancies, the terms of these were negotiated centrally in London. If, on the other hand, the numbers involved were small, the negotiations would take place locally. As the person responsible for implementing any redundancies, he would be involved whether the negotiations were central or local. In particular, in 1980 the number employed at the Works was reduced from about 1600 to about 350. Significant parts of the Works were closed. The relative negotiations, which he attended, took place in London. By that time there had been major redundancies elsewhere in BSC, and a basic payment calculated by reference to actual earnings averaged over the last thirteen weeks had become the norm. Depending on circumstances there might be an additional "top hat" payment. That was a matter for negotiation. Before 1985 some employees were made redundant with substantially enhanced payments. In the course of cross examination Mr Chappell assented to a question which suggested that by 1984 the basic payment which he had said had become the norm might have become a matter of contractual entitlement.

A Term of the Contract by Custom and Practice

Mr Grant-Hutchison, for the pursuer, submitted that the evidence of historical practice before 1985 was sufficient to establish the existence by that date of an implied term of the employees' contracts that any redundancy payment would include at least a basic element calculated by the application of the appropriate multiplier derived from the length of the employee's service to a multiplicand constituted by the average of the employee's actual earnings over the last thirteen weeks. If such a term could be implied into the contracts between BSC and the employees at the Works, the evidence was that there was continuity of terms and conditions of employment at the transfer of the undertaking from BSC to the Company, and the implied term would therefore continue to apply after the Company took over the Works. While he acknowledged that his primary argument depended on an express term constituted by the collective agreement of 20 November 1985, he submitted that the implied term which he contended for remained relevant either (i) as the context in which the collective agreement was entered into, and thus as having a bearing on its interpretation, or (ii) as a continuing term of the contract in its own right, if I held that there was no consensus in idem reached in the agreement of 20 November 1985.

For the test to be applied in determining whether a practice followed by employers should be treated as having been incorporated into the employees' contracts on the basis of custom and practice Mr Grant-Hutchison referred to two cases. The first was Duke v Reliance Systems Limited [1982] IRLR 347, in which the issue was whether there should be implied into the contracts of female clerks in the employment of the respondents, on the basis of custom and practice, a term that the normal retiring age was 60. Browne-Wilkinson J, giving the judgment of the Employment Appeal Tribunal (EAT), said (at paragraph 9 of the judgment):

"A policy adopted by management unilaterally cannot become a term of the employees' contract on the grounds that it is an established custom and practice unless it is at least shown that the policy has been drawn to the attention of the employees or has been followed without exception for a substantial period."

The second case cited was Quinn v Calder Industrial Materials Limited [1996] IRLR 126. That case, like the present one, involved an issue as to whether a term providing for an entitlement to an enhanced redundancy payment had been incorporated into the employees' contracts on the ground that it was an established custom and practice. The EAT held that they could not infer that the term contended for had been incorporated in the contracts. Lord Coulsfield (at paragraph 6 of the judgment) set out the passage from Browne-Wilkinson J's judgment in Duke which I have quoted, and commented:

"As the use of the words 'at least' shows, Browne-Wilkinson J was not attempting to set out the whole law relating to the implication of a term, but was drawing attention to particular factors which negatived the existence of an implied term in the particular circumstances of that case. In the present case, it is, we think, necessary to approach the question of the implication of terms on a rather wider basis."

Lord Coulsfield then went on, under reference to Liverpool City Council v Irwin [1977] AC 235, to discuss the various bases on which a term may be implied into a contract. In paragraphs 7 and 8, his Lordship continued:

"In a case such as the present, the factors to which Browne-Wilkinson J referred are likely to be among the most important circumstances to be taken into account, but they have to be taken into account along with all the other circumstances of the case. Thus, for example, in our view, the question is not whether the period for which a policy has been followed is 'substantial' in some abstract sense, but whether, in relation to the other circumstances, it is sufficient to support the inference that that policy has achieved the status of a contractual term. Again, with regard to communication, the question seems to us to be not so much whether the policy has been made or become directly known to the employees or through intermediaries, but whether the circumstances in which it was made or has become known support the inference that the employers intended to become contractually bound by it.

If the present case is approached in the manner which we have attempted to explain, it is, in our view, important that, while the Cookson terms have been applied on every occasion on which redundancy arose between 1987 and 1994, they had not been incorporated in any agreement, or communicated to the employees by the management. That is important because the positive act of communication of the terms to the employees might well suggest an intention to be bound by them, which does not arise, or not with the same force, merely from the repeated acting upon those terms. The period over which the enhanced terms were acted on was seven years, but, on the other hand, there were only four occasions during the seven years when redundancies arose. The enhanced terms had been paid on each occasion when there was a redundancy from 1987 onwards; but, on the other hand, there was evidence that payment of the enhanced terms was not, from the employers' point of view, automatic, but required a decision on each occasion. The fact that the employees' knowledge came from fellow employees would not preclude the possibility of treating the enhanced terms as established, by custom and practice, as part of the contract; but it is necessary to take that knowledge along with the other circumstances, including the fact that there does not appear to have been any evidence that any employee actually entered into the employment on the faith of an expectation that those terms would be applied."

Mr Grant-Hutchison submitted that the evidence showed that by 1984 the practice adopted by BSC of calculating the basic element of any redundancy payment by reference to actual earnings averaged over the last thirteen weeks of employment, without reference to the cap on the amount of such earnings which formed part of the calculation of the statutory minimum payment, was well established; that it was well known to employees; that a senior representative of management, Mr Chappell, recognised that it might by then have achieved contractual status; and that its application was automatic in all cases of redundancy. In these circumstances, he submitted, it was proper to conclude that entitlement to a redundancy payment calculated on that basis had become an implied term of individual employees' contracts of employment. In addition, it was of significance (in the context of what Lord Coulsfield said in Quinn about employees acting on the faith of the expectation that a term would be applied) that the pursuer had said that a few years before 1994 he had had the opportunity of taking other employment, had considered the matter, and had decided to stay with the Company because of the enhanced redundancy payment to which he understood that he would be entitled in the event of his being made redundant by the Company.

Mr Robertson for the defenders submitted that the evidence of the practice followed before the collective agreement of November 1985 was entered into showed merely the operation of a policy which did not have the status of a contractual term. He took issue with the suggestion that it was proper to conclude from the evidence that the calculation of the basic element of redundancy payments by reference to actual earnings was automatic. There was no evidence that it was drawn to employees' attention by management that that approach would be adopted in all cases. He added to the authorities cited by Mr Grant-Hutchison an unreported decision of the EAT, Pellowe v Pendragon plc (17 June 1999, HH Judge Peter Clark). In that case the appellant's contention was that she was entitled to an enhanced redundancy payment. Over a period of ten years during which there had been over 100 redundancies the employers had followed the practice of making an enhanced redundancy payment, calculated in accordance with a ready reckoner which did not form part of their Employee Handbook, but did appear in a management manual which circulated only among members of management. The EAT held (paragraph 16) that the policy remained just that; the employers had been

"careful not to commit themselves to a contractual obligation to make such payments, by reserving the scale of the enhanced payments for the management manual which was not formally distributed to the workforce."

Mr Robertson referred also to Young v Canadian Northern Railway Company [1931] AC 83.

Following the approach outlined by Lord Coulsfield in Quinn, it seems to me that the question which I must ask myself is whether the evidence concerning the practice or policy followed until 1984 properly supports the inference that BSC had evinced an intention to be contractually bound to calculate the basic element of redundancy payments on the basis of actual earnings in all cases irrespective of the circumstances of the individual case. It is, in my view, unhelpful to the pursuer's contention, albeit not necessarily fatal to it, that there is no evidence that BSC ever communicated to its employees in general that they had such an intention. There appears to have been nothing as formal as the ready reckoner in the management manual in Pellowe, although Mr Wallace did speak of a standard calculation made by wages department staff on a standard form. I attach no weight to the existence of the standard form, since, as can be seen from the example in No. 6/11 of process, it would accommodate a calculation of the statutory minimum payment as easily as a calculation of the enhanced payment. I have no difficulty in accepting that all redundancy payments made by BSC over the period up the 1984 to which the evidence related included as their basic component a sum calculated by multiplying the appropriate number derived from length of service by the average actual earnings over the last thirteen weeks of employment. I accept that the workforce as a whole probably became aware that the practice was being followed, although I found Mr McKenna's evidence surprisingly vague about how the weekly wage to be taken into account was calculated. I accept Mr Chappell's evidence that the payment of a redundancy payment including a basic element based on actual earnings became "the norm". I do not consider, however, that I can regard his acceptance, in a single answer to a leading question, that the enhanced payment may have become contractual as decisive. It is in my view important that the evidence was that the total redundancy payment was a matter of negotiation on each occasion when redundancies occurred. No doubt the negotiation concentrated on the additional sum to be paid over and above the basic element. It seems to me, however, that that is equally consistent with two views of the enhanced basic payment. One possibility is that BSC had accepted an obligation to pay at least that enhanced basic amount. The other possibility, however, is that on each occasion when the matter of redundancy payments came to be negotiated the management accepted that it was not going to succeed in persuading the trade unions and their members to accept a total payment of less than such an enhanced basic element, and therefore did not seek to make the question of whether the basic payment was to be at the enhanced level an issue in the negotiation. Given that alternative explanation for the fact that the enhanced basic payment was always in practice "taken as read", I do not feel able, in the absence of any other factor pointing to BSC's acceptance of a contractual obligation to pay at least the enhanced basic payment in every case, to infer from the mere fact that it was regularly paid that such a contractual obligation was accepted. I do not consider that the pursuer's evidence that at a subsequent date, in deciding whether or not to remain in the Company's employment, he placed reliance on his understanding that he would receive an enhanced payment in the event of his being made redundant, affords any support for the inference that before 1985 there was an implied term of his contract entitling him to such a payment, since by that time the collective agreement was in existence. In all the circumstances I reject the submission that the evidence shows that by 1984 it was an implied term of the contract of the employees of BSC at the Works that in the event of redundancy they would receive an enhanced redundancy payment which would include at least a basic element calculated by reference to actual earnings in the last thirteen weeks of employment.

In these circumstances it is not necessary for me to deal with Mr Grant-Hutchison's submissions about how such an implied term might survive as a term of the individual contracts of employment despite the incorporation of the collective agreement of November 1985. In so far as he relied on existing practice as an element of the context in which the collective agreement was entered into, and thus as relevant to its construction, it seems to me that the point remains available (albeit perhaps of reduced weight) even although I have held that the practice did not become an implied term of the contract.


Construction of the Collective Agreement

In making his submissions as to the construction of the collective agreement of 20 November 1985, Mr Grant-Hutchison referred to Prenn v Simmonds [1971] 1 WLR 1381, and in particular to the speech of Lord Wilberforce who said (at 1385H):

"In my opinion, then, evidence of negotiations, or of the parties' intentions, ... ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively of the 'aim' of the transaction."

He referred also to Eurocopy (Scotland) plc v Lothian Health Board 1995 SLT 1356 in which Lord President Hope (at 1360E) emphasised the need to construe a commercial contract in accordance with business common sense. His submission was that paragraph (ii) of the clause of the collective agreement headed "Redundancy Payments" should be construed as meaning that the contemplated negotiations in the event of more than fifteen employees being made redundant would be concerned only with how much more the total payment should be than the basic payment contemplated in paragraph (i)(a).

In advancing that submission, Mr Grant-Hutchison relied on the evidence about pre-1985 practice which I have already discussed in the context of his submission that there was an implied term based on custom and practice. He also relied on evidence about the trade unions' objective in entering into the collective agreement, and what would or would not have been acceptable to the workforce. It is convenient to record what the evidence on these latter matters was, before attempting to determine to what extent such evidence is relevant to the construction of the collective agreement.

The pursuer gave evidence to the effect that between 1985 and 1994 there were redundancies on a number of occasions and, so far as he was aware, no one received only the statutory minimum payment. He said that if that had happened, word of it would have spread among the workforce. He was unable to say with certainty, however, whether any of the redundancies during that period had involved more than fifteen employees. He was vague about whether he was made aware of the collective agreement at the time it was entered into. Although he was aware that Mr McKenna was involved in negotiations, he did not remember seeing the collective agreement at the time or being told by Mr McKenna about its terms. He assumed that paragraph (ii) meant that there would be negotiations about a higher payment in the case of redundancy affecting over fifteen employees than was payable when fewer than fifteen were affected. There would, he said, have been an outcry if the workforce had been informed that paragraph (ii) meant that the negotiations might result in less favourable terms when more than fifteen were made redundant than applied when fewer than fifteen were affected. He had never been told that that was what had been agreed.

Mr McKenna, who was one of the two trade union signatories of the collective agreement, gave evidence that in 1985 following the take-over of the Works by the Company, employees were worried about losing the benefit of what they understood to be the existing terms of their contracts of employment. The workforce wanted something to regulate their redundancy entitlement with the Company, to make sure that they did not "come out of BSC with nothing". At that stage, there had been a substantial reduction in manpower, leaving only what Mr McKenna described as "core manning", so it was not expected that there would be many more redundancies. He said that the workforce "could not expect as much as with BSC". His gloss on paragraph (i)(a) of the collective agreement was that it was designed to bring into the calculation items such as overtime payments, i.e. to base the calculation on actual earnings. His gloss on paragraph (ii) was that if there were to be larger scale redundancies, the unions would be looking for "a better deal". He said that "we" (i.e., as I understood him, the union negotiators) would not have agreed to lesser payments where more than fifteen were to be made redundant. The membership would not have accepted it, and would not have allowed the union negotiators to agree to it. In cross examination, he declined to accept that the negotiators had agreed to paragraph (ii) leaving open the possibility of lower payments in the circumstances to which it applied, or that their reason for doing so had been that it was not anticipated that redundancies involving more than 15 would take place. He did, however, accept that between 1985 and 1994 such redundancies as had occurred had all been of small numbers which fell within the scope of paragraph (i)(a). He explained that the draft collective agreement was taken to meetings of the workforce for approval, only signed by the union negotiators after such approval had been obtained, and subsequently posted on notice boards in the Works. He was unable to recall how the distinction between redundancies involving fewer than fifteen and those involving more than fifteen employees had come to be introduced into the collective agreement.

Mr Wallace, who was one of the management signatories of the collective agreement, said that when the Company took over the Works, the workforce were very apprehensive about the future, and wanted to "get something in black and white". He said that his understanding was that paragraph (ii) was put into the collective agreement at the behest of the unions, who wanted to be able to negotiate more favourable terms when there were more than fifteen employees to be made redundant. What the extra would be would depend on the state of the Company at the time. What was contemplated was something over and above the amount that would be paid in cases falling under paragraph (i)(a). He never suggested that the result of negotiation under paragraph (ii) might be less. On both sides, he said, it was thought that such negotiation would involve something more. After 1985 and before the appointment of the receivers, no one who was made redundant received less than was provided for in paragraph (i)(a), but there was no case of more than fifteen redundancies at a time, and therefore no occasion which tested the application of paragraph (ii). Mr Wallace said that he had no recollection of Mr Chappell suggesting paragraph (ii) as a route to lower payments where more than fifteen were to be made redundant. In re-examination, he expressed the view that the Company would not have got the agreement of the unions to paragraph (ii) if it had meant the possibility of lower payments when more than fifteen were made redundant.

Mr Chappell, who as managing director of the Company was the other management signatory of the collective agreement, said that he did not have total recall of the negotiations that led to its execution. Although he placed it in the context of a much reduced workforce resulting from the redundancies effected by BSC before the Company took over the Works, he did not recall whether the agreement resulted from trade union pressure or was a management initiative. His own judgment at the time was that there was unlikely to be a need for more than fifteen employees to be made redundant at one time. The distinction between redundancies involving more and fewer than fifteen was made, he maintained, because management required to preserve its position in relation to larger scale redundancies, so as to be able to negotiate hard if facing a "black hole crisis", particularly given that the Company had more limited resources than BSC had had. He recognised that in the context of a larger scale redundancy the trade unions would be looking to negotiate an enhanced payment, but maintained that conversely management, constrained by the Company's "bank balance", would be aiming to negotiate for less. He said that he did not recall if in the course of negotiation it had been expressly stated that in larger scale redundancies the payment might be negotiated at a figure lower than the enhanced basic payment applicable in smaller scale redundancies. Although he accepted that it would be usual for a negotiating team to discuss tactics, he had no recollection of discussing the point with Mr Wallace. He said that he recalled "crafting the words [of paragraph (ii)] carefully", but did not recall mentioning their effect, as he saw it, to Mr Wallace or to the union negotiators. He accepted that he did not think that it was for him to point out to the union negotiators that the wording which he proposed would open the way to negotiation of a lower payment than was provided for in paragraph (i)(a). His position was that he was in 1985 the managing director of the only privatised part of BSC in Scotland, and it was his responsibility to create a situation in relation to redundancies that the Company could "live with". While the purpose of paragraph (i)(a) was to establish the pre-existing practice with contractual force in cases of fewer than fifteen redundancies, conversely the purpose of paragraph (ii) was to ensure that the normal enhanced basic payment would not apply automatically in cases of more than fifteen redundancies.

Mr Robertson, for the defenders, while accepting that it was appropriate when approaching the task of construing the collective agreement to bear in mind the factual matrix in which the contracting parties were when they entered into it, submitted that it was on the other hand inappropriate to take into account what the contracting parties intended an expression used in the contract to mean or understood it to mean (Hooper v British Railways Board [1988] IRLR 517).

In my opinion it is appropriate to begin the task of construction of the collective agreement by examining objectively the terms in which it is expressed. The provision dealing with redundancy payments is clearly divided into two parts, one dealing with cases involving fewer than fifteen employees and the other dealing with cases involving over fifteen employees. The first part, paragraph (i), provides (a) that payment will be calculated on actual earnings, and (b) that certain other matters may be negotiated. Paragraph (i)(a) is no doubt somewhat elliptical, but there is no real doubt that what was meant was that the multiplier derived from length of service would be applied to the average of actual earnings over the last thirteen weeks of employment. The second part, paragraph (ii), simply provides that in cases to which it applies payment is to be negotiated. A provision that in certain events an amount to be paid is to be negotiated seems to me to point prima facie to unconstrained negotiation. No doubt when dealing with redundancy payments, the scope for negotiation is restricted by the statutory provisions laying down a formula for calculation of the minimum payment. But in my view, that restriction apart, paragraph (ii) does not in its language appear to contemplate that the negotiation is to be conducted within pre-set bounds. It seems to me, moreover, that a comparison of paragraph (ii) with paragraph (i) reinforces that prima facie view. Paragraph (i) lays down in part (a) a non-negotiable element and in part (b) a negotiable element. Paragraph (ii) provides only for negotiation. Given that structure, it is in my view impossible to find in the language of the agreement anything to support the inference that paragraph (ii) means that in the case of redundancy affecting more than fifteen employees the same basic payment was to be made as is provided for expressly in cases involving fewer than fifteen employees in paragraph (i)(a), and the negotiation provided for was to be concerned only with whether a further additional payment was to be made. If, therefore, I were to construe the collective agreement in a vacuum by reference only to its language, I would conclude that in cases involving more that fifteen employees, there was no provision for a contractual minimum payment.

In my opinion, much of the evidence which was led about the circumstances in which the collective agreement was entered into is evidence to which it is inappropriate to have regard in reaching a conclusion about the proper construction of it. The proper construction of the collective agreement is not in my opinion affected by what the negotiators intended to achieve or thought that they had achieved by the use of or agreement to the language in which it was expressed (Prenn v Simmonds; Hooper v British Railways Board). I therefore consider that I must leave out of account, on the one hand, what Mr McKenna and Mr Wallace thought the effect of paragraph (ii) was and, on the other hand, what Mr Chappell intended to achieve by drafting that paragraph as he did. Equally, it seems to me to have no bearing on the matter which I have to decide that the workforce might well have been unwilling to reach an agreement in the terms set out in paragraph (ii) if they had appreciated that the language left open the possibility that the negotiated payment would be less than that provided for in paragraph (i)(a). It seems clear to me that when the draft agreement was presented to the workforce, no one focused on what paragraph (ii) meant. That may have been because no one thought that there were likely to be redundancies involving more than fifteen employees at a time. It may have been because Mr McKenna and Mr Wallace both thought that it meant negotiation upwards from the same enhanced basic payment as is mentioned in paragraph (i)(a). But there is in my view no room for the reasoning that paragraph (ii) cannot mean what the defenders contend that it means because the workforce would never have agreed to that, when it is clear that no one drew to the attention of the workforce that the words used bore or might bear that meaning.

That leaves for consideration whether the prima facie meaning which I take from the language of the collective agreement is displaced when proper consideration is given to those extrinsic circumstances to which regard may properly be had. It seems to me that the factual background to the collective agreement may be summarised thus. The Works had, for many years, been part of a large nationalised industrial organisation, BSC. While the Works were under the control of BSC the workforce had been very substantially reduced. That had been achieved by redundancies in respect of which substantially enhanced redundancy payments had been made, involving not only an enhanced basic payment calculated by reference to actual earnings without regard to the statutory cap, but also substantial further ex gratia payments. The general experience was that the larger the number being made redundant, the greater was the enhancement of the redundancy payments. The Works had been taken over by the Company from BSC. Although as at 1985 BSC continued to have a substantial interest in the Company, the Works was no longer an integral part of BSC's undertaking. There was, among the remaining workforce, concern that their terms and conditions of employment should not be adversely affected by the take-over of the Works by the Company. Although there was continuity of employment from BSC to the Company, the workforce wished reassurance that by transferring to the employment of the Company they had not lost the prospect of enhanced redundancy payments if further redundancies took place in the future. The trade unions therefore entered into negotiations with a view to a formal agreement as to the handling of future redundancies. From the point of view of the management of the Works, on the other hand, the situation was new. They were no longer an integral part of BSC. In entering into an agreement which would regulate future redundancies, they had to bear in mind the resources available to them, and the range of circumstances in which redundancies might have to be declared.

When regard is had to all these background circumstances, I am of opinion that there is nothing to displace the prima facie interpretation which I have held that the language of the collective agreement naturally bears. The circumstances do not, in my view, support the conclusion that the management negotiators as well as the trade union negotiators must objectively be taken to have had in mind that the negotiation referred to in paragraph (ii) would be concerned only with how much extra would be paid in the case of redundancies involving more than fifteen employees, over and above the amount payable in other cases. There is, in my view, nothing bizarre or incompatible with common sense about a collective agreement which, in relation to the more likely event of smaller scale redundancies binds the employers to make the sort of enhanced payments which have in practice been paid in the past and have come to be expected by the workforce, but in relation to the remoter prospect of larger scale redundancies reserves to the employers room for manoeuvre according to the circumstances prevailing when that eventuality occurs. The possibility that such negotiation might be downwards from the level of payment agreed for other circumstances would no doubt have been unpalatable to the workforce, if it had specifically been drawn to their attention, although the possibility of negotiation upwards from that level of payment was also preserved by the form of words adopted.

Mr Grant Hutchison relied on Lord Wilberforce's reference to the "aim" of the transaction in Prenn v Simmonds, and sought to argue that in the present case the aim of the transaction was to secure for the workforce a contractual entitlement to enhanced redundancy payments, and that paragraph (ii) therefore had to be construed in the sense he contended for, since otherwise that aim would be frustrated. That approach is in my opinion flawed. It confuses the objective aim of the transaction, which is what Lord Wilberforce referred to, with the individual aim of one of the parties to the transaction. In so far as there can be identified objectively a common aim shared by both parties in entering into a contract, that aim may shed light on what must have been meant by the language adopted to express the agreement reached between the parties. But in most contractual negotiations each negotiating party will have an aim of his own, and the parties' respective aims will be in conflict. In the present case, it seems to me, the common aim of the parties in entering into the collective agreement was to reduce to written form an agreement regulating the conduct of future redundancies. It may well have been an aim of the trade union negotiators to secure that management were bound to make enhanced redundancy payments in all circumstances, but I am unable to hold that the evidence shows that that was also objectively the aim (or an aim) of the transaction.

I am therefore of opinion that there is nothing in the relevant circumstances to displace the natural meaning of the language of the collective agreement. That language shows that what was agreed was that, in cases involving fewer than fifteen employees, there would be an enhanced redundancy payment based on actual earnings, but that the level of payment in the event of a case involving more than fifteen employees would be reserved for negotiation at the time, with no predetermined minimum other than that imposed by statute.


For the reasons which I have set out I am of opinion that the pursuer's claim, so far as relating to an enhanced redundancy payment, fails. As I mentioned at the beginning of this opinion, the defenders conceded that the pursuer was entitled to receive an additional sum of 170 in respect of pay in lieu of notice. Neither party has distinguished in the framing of pleas-in-law between the two elements of the claim. It is perhaps sufficient for me to sustain the pursuer's first plea-in-law so far as relating to pay in lieu of notice, and repel it so far as relating to redundancy payment. That done, I shall grant decree for payment by the defenders jointly and severally to the pursuer of the sum of 170, with interest on that sum at the rate of 8 per cent a year from 29 April 1994 until payment.