Appeal No. UKEAT/0349/07/DM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 18 December 2007

Before
HIS HONOUR JUDGE PETER CLARK
(SITTING ALONE)

HOWITT LTD	APPELLANT

(1) MR S KING AND OTHERS
(2) OLWEN DIRECT MARKETING SERVICES (CROYDON) LTD
     (IN LIQUIDATION)	RESPONDENTS

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR THOMAS KIBLING
(of Counsel)
Instructed by:
Messrs Browne Jacobson Solicitors
44 Castle Gate
Nottingham
NG1 7BJ	
For some of the First Respondents

For other of the First Respondents	MR DESHPAL PANESAR
(of Counsel)
Instructed by:
Messrs Thompsons Solicitors
Congress House
Great Russell Street
London
WC1B 3LW 

Written submissions

	
For the Second Respondent	No appearance or representation by or on behalf of the Second Respondent

	
As an Observer	MR DAVID MCILROY
(of Counsel)
Instructed by:
Messrs Moorhead James Solicitors
Kildare House
3 Dorset Rise
London
EC4Y 8EN	

SUMMARY

Transfer of Undertakings:	Transfer
Practice and Procedure:	Appellate jurisdiction/reasons/Burns-Barke

Relevant transfer - perversity - issue raised and not contested – not permitted to be re-opened on appeal.
HIS HONOUR JUDGE PETER CLARK QC

1.	The parties to these proceedings before the London (South) Employment Tribunal were Mr King and Others, Claimants, and (1) Olwen Direct Marketing Services (Croydon) Ltd (In Liquidation) (“Olwen”), (2) Howitt Ltd (“Howitt”), Respondents.  In this judgment I shall refer to the parties respectively as the Claimants, Olwen and Howitt. 

2.	This is an appeal by Howitt against the judgment of a Chairman, Mr A Gumbiti-Zimuto sitting alone at a Pre-Hearing Review (PHR) held on 26 and 27 March 2007.  By that judgment, promulgated with reasons on 16 April and corrected by a certificate under rule 37(1) of the Employment Tribunal Rules, dated by the Chairman 3 May, he held that a transfer of an undertaking in which the Claimants were employed had taken place from Olwen to Howitt on 26 May 2006. 

The Issue
3.	The sole preliminary issue at the PHR was whether a relevant transfer from Olwen to Howitt took place on 26 May 2006 and that being the question, the provisions of the TUPE Regulations 2006, which came into force on 6 April 2006, replacing the earlier 1981 regulations, applied.  Regulation 3(1)(a) provides:
“(1)	These regulations apply to  - 
(a) a transfer of an undertaking or business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity;…”

4.	Pausing there, it seems clear to me that the expression “transfer of an economic entity which retains its identity” reflects the jurisprudence of the European Court of Justice over the preceding 25 years, helpfully distilled by Lindsay J, President, in Cheeseman v R Brewer Contracts Ltd [2001] IRLR 144.  Was there an undertaking that is a stable economic entity?  Following the alleged transfer did it retain its identity in the hands of the putative transferee?  Determination of those questions lies with the fact-finding national court, here the Employment Tribunal, based on consideration of the factors identified by the ECJ in Spijkers v Benedik [1986] ECR 1119, no one factor being determinative.

The Facts
5.	These I take from the Chairman’s findings of fact.  Olwen, formerly Vertis Direct Marketing Services (Croydon) Ltd (Vertis”), traded from premises in Stafford Road, Croydon.  Prior to 7 October 2005 the Claimants were employed by Vertis.  On that date Vertis changed its name to Olwen.  On 24 October Howitt purchased the entire share capital of Olwen.  Howitt operates a similar business to Olwen in the direct marketing services sector based at Sutton-in-Ashfield in Nottinghamshire.  Following that acquisition, Howitt re-branded Olwen under its own name, Howitt.  It lent assets to Olwen without charge and provided professional services.  However, Olwen retained its legal identity.  Whereas before Christmas 2005 work tended to go from Nottingham to Croydon, after Christmas that traffic was reversed.  

6.	By the end of April 2006 Olwen’s operational loss had risen to £788,000 on sales of £3.235 million.  The projected loss for the financial year was thought to be in the region of £2.4 million.  On 18 May 2006 it was decided to place Olwen into administration.  Olwen’s plant and machinery was valued, together with its work in progress.  An offer was made to purchase those items by Howitt which then shared two directors with Olwen, Richard Taylor and Nick Dixon.  Barry Lewis was appointed administrator of Olwen on 26 May 2006 and informed the Olwen workforce, including the Claimants, that they were dismissed as redundant on that day.  Further, by an agreement dated 26 May, Olwen sold the majority of its assets to Howitt with effect from 30 May.  Plant and machinery were sold for £275,000, work in progress for £27,500. 
7.	The Chairman found that Howitt was dealing with customers of Olwen prior to 26 May, representing more than 50 per cent (the Claimants contended it was 54 per cent) of Olwen’s business.  Some of Olwen’s employees, 5 or 6 out of 137, were offered employment with Howitt or its associated companies.  They were people having direct contact with Olwen’s customers.  Both companies provided printing services in the direct mail sector.  It is a highly competitive market.  The Chairman records at paragraph 38 of his reasons that a contract between Olwen and Prudential was novated to Howitt on 26 March 2006 and a Kern enclosing machine was moved from Croydon to Howitt’s Nottingham site specifically for work on that contract.  Howitt or its associated companies continued work on contracts formerly held by Olwen after 26 May with Specsavers, Domino Pizza, Yellow Pages, Royal Mail and Nestlé.  Whilst recognising that it was not always possible to disentangle the extent to which work would have gone to Howitt in the normal course of business, the Chairman was satisfied that a substantial part of Olwen’s business went to Howitt.  Amongst the assets purchased by Howitt was computer equipment and servers which contained Olwen’s business information which thus passed to Howitt. 

The Tribunal’s Conclusions
8.	The Chairman found (1) that there was a stable economic entity, that is the undertaking of Olwen, prior to 26 May 2006; (2) in answer to the question did that undertaking transfer to Howitt and if so when, he held that a transfer took place on 26 May 2006 when Howitt acquired the majority of Olwen’s business assets, including 80 per cent of their computers and 100 per cent of their servers, which allowed Howitt to carry on over 50 per cent of the business of Olwen after that date.  There was recognisably a substantial part of Olwen’s business being conducted after the transfer by Howitt.  Howitt took over critical sales staff of Olwen needed to allow the business of Olwen to continue.

The Appeal
9.	In this appeal Mr Kibling appears on behalf of Howitt, Mr Panesar on behalf of some of the Claimants who I assume are backed by their trade union.  Other Claimants have lodged written representations.  Finally, Olwen, now in liquidation, does not appear and is not formally represented today, although counsel Mr McIlroy has attended this hearing as an observer and has given me assistance on a factual matter to which I shall return.

10.	In advancing Howitt’s appeal against the finding that a relevant transfer took place on 26 May 2006 Mr Kibling takes three points: (1) the Chairman failed to properly consider or apply regulation 3(1)(a) of the TUPE Regulations 2006 and failed properly to consider, interpret or apply the ECJ judgments in Spijkers and Suzen v Zehnacker [1997] ICR 662; (2) he misunderstood and/or misapplied the relevant evidence and/or made findings of fact which were perverse; (3) he made a determination in respect of regulation 8(7) of TUPE which was not an issue to be determined at the PHR.  

11.	Having heard the way in which Mr Kibling puts the matter in oral submissions, I can take the first two grounds together.  It is clear to me that the Chairman had firmly in mind the Spijkers test and made findings in relation to the factors there set out.  The real complaint here is one of perversity.  He placed too much weight on some factors pointing towards a transfer and too little to factors pointing the other way.  I do not propose to rehearse the argument in detail, suffice it to say that I reject it.  In my judgment, Mr Panesar is correct in submitting that the Chairman permissibly reached his conclusion, applying the law to the facts as found.

12.	As to the third ground of appeal a possible area of misunderstanding has arisen.  At paragraph 10 of his reasons the Chairman said: 
“The exception referred to in regulation 8(7) does not apply in this case.  Regulation 8(7), which is new to the 2006 Regulations, provides:
‘Regulations 4 and 7 do not apply to any relevant transfer where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of an insolvency practitioner’.”

13.	It seems that Mr McIlroy, on behalf of the administrator of Olwen, submitted in a Skeleton Argument prepared for the PHR that regulation 8(7) did not apply to administration as opposed to liquidation of a company.  Mr Panesar agreed.  I accept Mr McIlroy’s recollection from the Bar that at an early stage in the PHR hearing he, Mr McIlroy, indicated to the Chairman that he, the Chairman, need not deal with the regulation 8(7) point because it was not in dispute without demur from counsel present.  Mr Kibling does not dispute that recollection and that understanding is confirmed by the Chairman in his written comments to the EAT.

14.	In these circumstances I fear that Mr Kibling, in his words, missed the opportunity to contest the regulation 8(7) point.  The Chairman was entitled to proceed on the basis that the point was not in issue and to record that position in his reasons.  Consequently, this appeal fails and is dismissed.