Case - Ms Anderson & ors and Mr Philips & ors v. London Fire & Emergency Planning Authority

[2013] EWCA Civ 321, Court of Appeal - Oliver Segal QC, Stuart Brittenden
1. In Anderson & Ors v London Fire & Emergency Planning Authority (LFEPA), Oliver Segal QC and Stuart Brittenden successfully represented +300 claimant members of GMB and UNISON in the Court of Appeal in claims for unlawful deductions from wages under Part II Employment Rights Act (ERA) 1996 (in turn successfully reversing the judgment of the ET and EAT which found in favour of the employer).
 
 
2. In a judgment handed down on 11 April 2013, LJJ Maurice Kay, Moses, and Davis, each gave judgment in favour of the claimant employees.
 
 
3. In terms of significance, the Court of Appeal provides a reminder of the correct approach to construing collective agreements and other contractual provisions; expresses caution against adopting a literal or linguistically precise interpretation of provisions without applying a "sense-check"; and arguably renders it more difficult for a party to establish that a provision lacks contractual force on the basis that it is unclear or otherwise ambiguous.
 
 
Facts

4. In July 2007 LFEPA concluded a collective agreement with GMB and UNISON. It was conceived as a forward-looking three-year deal. In terms of pay, the disputed provision stated:

"In recognition of the agreement of GMB and Unison to the terms set out in this agreement, the LFEPA shall increase the rates of pay of all employees covered by the ICCS by 2.9% with effect from 01/04/07. On 01/04/08 there will be a further pay uplift of 2.75% save for those covered by the pay protection arrangements set out in paragraph 11 below. On 01/04/09 pay will be increased by 2.5% or by the NJC for Local Government Services settlement plus any uplift required to ensure general pay increases for the period 2007-09 are 1% above the NJC settlements for the same period."

 
5. No dispute arose in relation to the operation of the first two years. The dispute related to what the provision in respect of the third year meant (text underlined above). Were the claimant employees entitled to a pay rise of at least 2.5% (unless the NJC+1% formula yielded a greater increase)? Did LFEPA retain the ultimate choice as to whether to pay 2.5% ‘or’ the NJC+1%? Alternatively, because the provision did not state which option took primacy, was it too uncertain to be apt for incorporation into contracts of employment? Or, as LFEPA also asserted, did it lack force as being an agreement to agree?
 
 
6. By April 2009 the financial crisis had eventuated. LFEPA took the view that it was under no obligation to implement an increase of 2.5%, instead seeking to impose a lesser pay deal (which was compliant with NJC +1% formula).
 
 
The ET Proceedings
 
7. The employees commenced proceedings for unlawful deductions from wages in the ET – each seeking a 2.5% pay increase. The ET concluded that because the wording for 2009 provided for two alternatives - but did not state which one should take primacy - it was no more than an agreement to agree, or otherwise an agreement to negotiate further for that year. Accordingly, there was no legal entitlement to an increase of 2.5%.
 
 
The EAT Proceedings [2012] IRLR 888 EAT
 
8. The appellants’ appeal to the EAT was partially successful in reversing the ET’s findings. The EAT found that the ET was in error in finding that the provisions for year 3 were no more than an agreement to agree or otherwise uncertain, but went on to dismiss the appeal on the basis that LFEPA had the choice as to which option to pay. The EAT adopted what has been described as a “literal” approach to the issue of interpretation. Slade J stated (at paragraph 26):
 
“Each option was clear. So too was it clear that it was for the paying party, [the Employer], to choose between the two. The existence of choice in an agreement does not render that agreement uncertain if the choices are clear. Contracts in different contexts may give an option to one party leaving the other party uncertain as to whether the option will be exercised. In the employment context a contract may give the employer the right to terminate on giving notice or pay in lieu of notice. The existence of choice in an agreement does not render that agreement enforceable as a contract.”
 
The Court of Appeal
 
9. Maurice Kay LJ – giving the lead judgment - reiterated and affirmed the “modern approach” to the construction of contracts as set out in the speech of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912H – 913E (which was further elucidated in Bank of Credit and Commerce International v Ali [2002] 1 AC 251 at paragraph 39), whilst also acknowledging that similar guidance had been foretold even before West Bromwich by Lord Bingham MR in Adams v British Airways PLC [1996] IRLR 574.
 
 
Uncertainty/not apt for incorporation
 
10. The three Lord Justices roundly rejected LFEPA’s various arguments that the provisions for year 3 lacked contractual force. Davis LJ emphasised that once it had been established that the parties had intended a provision to give rise to contractual rights, a Court or Tribunal should strive “so far as possible” to give effect to that – rather than rush to find that it is unenforceable.
 
“… One should, so far as possible, try and make what was plainly intended to be a binding contractual promise, covering a three year period, prevail as a contract.” (para 36)
 
11. The above guidance is of general application – an employer will find it increasingly difficult in seeking to assert that a provision lacks contractual force by seeking to exploit uncertainty or ambiguity.
 
 
Applying the “modern approach” to Year 3
 
12. The Court of Appeal had little difficulty rejecting the EAT’s “literal” approach to the issue of construction, which meant that ‘or’ gave LFEPA had the discretion to choose between the 2.5% or NJC +1% (meaning that it was free to pay the cheaper option). Whilst in the majority of cases a literal approach to construction would be appropriate – the parties meant and understood what they agreed to – it is important to adopt a “sense-check” to ensure that a literal interpretation really does in fact actually reflect the reality of the situation. Maurice Kay LJ stated:
 
“… The construction of it adopted by the EAT seems to me to be wholly improbable. The idea that the Unions would agree to a three-year deal in which the third year was covered by two alternatives, and that the Employer should have the unfettered right to choose between them strikes me as fanciful. I am quite sure that it would have struck the Employer as equally unrealistic. .... Such a construction flouts industrial common sense.” (para 22)
 
13. Meanwhile Davis LJ cautioned against applying a literal approach to construction – a literal or linguistically precise approach can be displaced where the context so requires:
"If one possible interpretation gives rise to a result which makes a lot of sense and another possible interpretation (even if at first sight the more linguistically precise interpretation) gives rise to a result which makes – put into context – little sense then the former, all other things being equal, should prevail. In my view, in the present case, the language of the clause does permit such an interpretation." (para 35)
 
14. Davis LJ – after considering the provision in context - rejected the literal approach to the meaning of 'or' that had been adopted by the EAT:
“The EAT adopted essentially a literal approach to the words used. Slade J’s approach thus was to say, in essence, that the use of the word “or” gave the employer a choice. It is true that as a general rule where a contract gives a party a choice as to the manner in which a contract may be performed that party ordinarily is free to choose the one most convenient to himself. But in the present context, the “choice” would here be devoid of all meaningful content. It would also come down to the employees themselves in effect being given a “guaranteed maximum”. I simply cannot get my head around such a concept in a case of this kind. It makes no real sense. A “guaranteed minimum”, on the other hand, makes every kind of sense.” (para 32)
 
Oliver and Stuart acted for the Appellants, and were jointly instructed by Thompsons and Unison.
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