CA405/05
JUDGMENT OF SHERIFF PRINCIPAL JAMES A TAYLOR
in the cause
John Morrish
RESPONDENT
against
NTL Group Limited
APPELLANTS
GLASGOW, 14 June 2006.
The Sheriff Principal, having resumed consideration of the cause, Refuses the appeal; Remits the case to the sheriff to proceed as accords; Finds the appellant liable to the respondent in the expenses of the appeal as these might be taxed; Allows an account thereof to be given in and Remits same, when lodged, to the Auditor of Court to tax and to report.
NOTE:-
Introduction
[1] The respondent is the former financial director and company secretary of the appellants. His conditions of employment were regulated by an agreement dated 6 July 1984 ("The Agreement") entered into between the respondent and Clyde Cablevision Ltd. By operation of the Transfer of Undertakings (Protection of Employment) Regulations 1981 the rights and obligations of Clyde Cablevision Ltd were transferred to the appellants.
Clause 1 of the agreement is in the following terms:-
"1. The Company shall employ the Appointee and the Appointee shall serve the Company as Financial Director and Company Secretary of the Company and subject to the provisions for determination of this Agreement hereinafter contained such employment shall be for a period of three years commencing on First June, Nineteen hundred and eighty four (notwithstanding the date hereof) and thereafter shall continue unless and until terminated by either party giving to the other not less than twelve months written notice thereof expiring on or at any time after Thirty first May, Nineteen hundred and eighty seven."
[2] By letter dated 6 January 2005 the appellants confirmed to the respondent that the respondent's employment was terminated with effect from 29 December 2004. The respondent was given his contractual pay in lieu of notice. The respondent maintained that the appellants were not entitled to terminate the respondent's contract of employment without giving him twelve months notice. Twelve months notice had not been given. The respondent had been summarily dismissed. The appellants were in breach of the agreement. As a result of the breach the respondent sustained loss. These losses were said by the respondent to include (1) a diminution in value of his pension rights; (2) a loss of opportunity to receive a 2004 Executive Bonus payment; (3) a loss of opportunity to receive a payment under the appellants' Long Term Service Incentive Plan and (4) a loss of opportunity to exercise share options.
[3] Before the learned sheriff the appellants submitted that as a generality the Law of Scotland recognised that there was implied into every contract of employment a term entitling the employer to dismiss the employee without notice on paying wages and other contractual entitlements in lieu. The learned sheriff agreed with the appellants' submissions in that respect. However the learned sheriff decided that said term was not implied into this particular agreement as it was excluded by the particular terms of the agreement. An implied term could not oust an express term. The employers appealed.
Appellants' submissions
[4] Mr Fairley, advocate for the appellants, submitted that if a term was implied into a contract ex lege there required to be express, clear and unequivocal words used in a particular contract if the term was to be excluded from that contract. There was no term of the Agreement which expressly excluded the appellant making payment of wages and other contractual entitlements in lieu of notice. I was referred to McBryde the Law of Contract in Scotland 2nd Edn at paragraph 9.09, Johnstone v Bloomsbury Health Authority 1992 QB 333 and Scottish Power plc v Kvaerner Construction (Regions) Ltd 1999 SLT 721. There required to be a distinction drawn between terms implied in order to give a contract business efficacy and those implied ex lege. The latter, being based on public policy, were more difficult to displace than the former. If there was an express term which touched upon certain issues it did not necessarily exclude a term implied by business efficacy touching upon the same issue. The position with regard to a term implied ex lege was even stronger.
[5] Mr Fairley then analysed the case of Morrison v Abernethy School Board (1876) 3R 945 to explain the derivation of the implied term for which he argued. He also referred me to Graham v Thomson (1822) 1S 309, Cooper v Henderson (1825) 3S 619 and to the more recent case of C R S Computers Ltd v MacKenzie (unreported, 25 April 2002, EAT/1259/01). He contrasted the position in England where the law does not imply a right in employment contracts to make payment in lieu of notice. Accordingly I should be careful in applying any English authorities on the subject matter.
[6] He then turned his attention to the particular term which one finds in the Agreement. The parties had not expressly agreed anything about payment in lieu of notice. It would have been open to them so to do but they had elected not to do so. He contrasted the present position with the contract in the case of Morrison and invited the court to accept that there was a similarity in the two situations in that both contracts were "at will". In Clause 1 of the Agreement the parties had expressly agreed the length of the notice period whereas in Morrison the period fell to be implied and the court deemed three months to be reasonable. The express provisions of the agreement and the implied term for which he argued could happily co-exist together. Accordingly there was no reason why primacy should be given to the express term to the exclusion of the implied term.
Respondent's submissions
[7] In reply Mr Reid, solicitor advocate for the respondent, submitted that the implied term contended for by the appellants was inconsistent with the express term in three distinct ways. In the first place, the express term entitled the respondent to remain employed by the appellants until the expiry of a twelve month notice period. In contrast the proposed implied term did not entitle the respondent to remain employed by the appellants for said period. The term which the appellants sought to imply entitled them to summarily dismiss the respondent without cause. Secondly, under the express term the respondent was entitled to receive twelve months written notice of termination. In contrast the implied term gave the respondent no such notice. The appellants could summarily terminate the contract without warning by tendering a payment. Thirdly, under the express term the respondent had a legal right to receive twelve months warning of termination and a legal right to remain employed until the expiry of that twelve month period. The converse of course meant that the employer was under a duty to give twelve months warning of termination and had a duty to employ the respondent for a similar period. The implied term cut across these rights and duties. Accordingly, submitted Mr Reid, the appeal should be refused. In any event it would have been open to the parties to agree upon a pay in lieu of notice (PILON) clause. They had not done so.
Decision
[8] I have come to the opinion that the appeal should be refused. I agree with Mr Fairley's submission based on Scottish Power that a term could be implied into a contract even although the contract contained an express term which touched upon the same subject matter. It is instructive to consider the particular terms of the contract between the parties in the Scottish Power case. The pursuers were the mechanical and electrical sub-contractors in a construction project. The defenders were the main contractors. The pursuers argued that there was an implied term which was in two parts. That term was that the main contractors had an obligation "not to hinder or prevent the pursuers from carrying out their obligations in accordance with the terms of the sub‑contract or from executing and completing the sub-contract works in a regular and orderly manner". However there was an express term that the pursuers had to carry out the works in accordance with a contractual timetable and in such stages and sequences as the main contractors from time to time required. It was not disputed that the first half of the implied term contended for, although it could be said to touch upon the express term, was properly incorporated into the contract. In his opinion Lord Macfadyen held that the second half of the alleged implied term was not properly incorporated as it conflicted with an express term. The main contractors were entitled to insist that the works were carried out in accordance with a timetable set out in the main contract. Accordingly there was no implied term that the sub-contractors were entitled to carry out the works in a regular and orderly manner. The implied term had to yield to the express term. The basis upon which the term was said to be implied into the contract was that it was necessary to give the contract the efficacy which the parties must have intended. To that extent the Scottish Power case differs from the instant case. In the instant case the implied term is not necessary to give the contract efficacy but rather it is said to be implied as a matter of law. I accept that because the term is implied as a matter of law very clear words are required in the contract to exclude the implied term. In the present case I consider that a similar clash occurs between the express term and the implied term contended for. The contract provides that the respondent's "...employment shall continue unless and until terminated by either party giving to the other not less than 12 months written notice." When construing a contract one has to try to ascertain the intention of the parties. In doing this the court must assume that the parties intended that the words they used were to be given some meaning. One should not interpret a contract in such a way that one is left with words adopted by the parties which have no content. If one takes such an approach it follows that the respondent is entitled to "continue" in the "employment" of the appellants until the expiry of a period of at least twelve months after written notice has been given. To adopt the approach urged upon me by Mr Fairley would result in these words being denied any meaning and therefore content. If these words are given their natural and ordinary meaning the interpretation for which Mr Reid contended has to succeed. To do otherwise would be to vary an express contractual term by giving precedence to an implied term.
[9] In expressing this opinion I am mindful that the Agreement gives the appellants the right inter alia to dismiss the respondent summarily should the respondent be guilty of any serious misconduct or should he breach the terms of the Agreement. I refer to Clause 17 of the Agreement. It may also have been open to the appellants to put the respondent on "garden leave". In my opinion the words used by the parties in their contract are clear. They are more than sufficient to oust the term implied ex lege. The express term has supremacy over the implied term.
The respondent's fall back position
[10] Mr Reid had a fallback position. In his Note the learned sheriff stated on page 7:-
"In summary I consider, that as a matter of general law, there is implied into employment contracts an entitlement in favour of the employer to dismiss without notice on paying wages and other contractual entitlements in lieu."
Mr Reid sought to challenge that finding. Unfortunately no cross appeal had been marked by the appellants. Accordingly Mr Fairley did not have proper notice of the extent of the law to be covered in the appeal. Indeed when opening the case for the respondents he commented on the fact that what was said by the learned sheriff on page 7 had not been challenged by the respondent. Although he was able to respond to some extent, I did not have the benefit of a full argument. The essence of Mr Reid's submissions was that the case of Morrison should be restricted to situations where the contract of employment made no provision for notice. His submission relied upon what was said by Lord Deas in Morrison at page 953 where his Lordship opined that the pursuer was only entitled to an estimate, made by the court, of the amount of notice to which he was entitled to receive from his employers. That estimate was described by Lord Deas as "arbitrary". He also stated that what was being paid to the pursuer was "an allowance...in lieu of notice" as opposed to damages for breach of contract. However Mr Reid did not address me on what was said by Lord Fraser in Mollison v Baillie (1885) 12 SLR 599, a case which the learned sheriff came upon in his own researches and to which he refers in his judgment. Lord Fraser cites with approval what was said in Wood's Treatise on the Law of Master and Servant, an American text:-
"When a servant is discharged without a sufficient legal excuse, before the expiration of his term, he has his choice of two remedies. He may elect to treat the contract as rescinded, and at once bring an action for the value of the services rendered, or he may sue for a breach of the contract, under cover as probable damages from the breach..."
There is no suggestion there made of the loss being an allowance. The expressions are what one would find in any text on the law of contract in Scotland.
[11] I note that the learned sheriff, again following his own researches, commented that the authors of the 11th edition of Gloag and Henderson considered the law to be:-
"It is an established rule at common law that an employer is entitled to dismiss an employee at any time on paying wages, and, in certain employments, board wages, for the remainder of the term, and that such dismissal does not involve a breach of contract."
This followed what was said by Lord Fraser in Mollison in a passage quoted by the learned sheriff in his Note:-
"Now, it has long been settled in this country that a master is entitled to dismiss a servant during the term of his engagement upon paying wages and also board wages when the servant has been boarded by the master and the servant cannot apply for interdict so as to prevent the dismissal."
I respectfully agree with what was said by Lord Macfadyen in Scottish Power at page 725E that where one is dealing with a type of contract that is commonplace, as is a contract of employment, the absence of precedent for a particular implied term militates against the conclusion that it arises as an ordinary legal incident. There is much force in the conclusion that a term which fails the business efficacy test is not implied on another basis. I did not understand it to be disputed that the implied term for which the appellants contend fails the business efficacy test. However I am not prepared to hold on the submissions made that there is no precedent for the proposition that the said implied term is a legal incident of a contract of employment. Lord Fraser, at least, considered the law to be well established. Mr Reid did not refer to Lord Fraser's opinion in his submission.
Mr Reid also referred to Morran v Glasgow Council of Tenants Associations 1997 SC 279. In that case Lord President Rodger declined to express a view on whether there is an implied right on the part of every employer to terminate the contract of employment without notice but on making a payment in lieu of notice. Given that I did not hear a full argument on the issue I consider it would be unwise for me to offer a view.