Two days on the trot and I find myself discussing dismissal in connection with former employees of the UK Government. Yesterday, I addressed the case of Sonia Khan, a former Special Adviser to two Chancellors of the Exchequer, who has a very strong case for unfair dismissal.
I now want to turn to the another prominent case of dismissal with which the UK Government has had to face recently. Last month, Sir Philip Rutnam who had been the Permanent Secretary at the UK Home Office (the Ministry of the Interior) took legal action against his former employer. The Permanent Secretary is the top civil service post in a Government Department and the post-holder would work very closely with the Secretary of State and her ministerial team.
The background to Sir Philip’s legal action against the Government is pretty sensational. He alleges that he was forced to resign from his post due to the unreasonable actions of his boss, Priti Patel MP, the Home Secretary. He is alleging that Ms Patel behaved in a bullying manner towards him and other civil servants in her Department. In short order, Sir Philip is claiming that he was constructively dismissed.
A link to the story as reported in The Guardian about Sir Philip’s legal action can be found below:
Constructive dismissal is usually described as an employee jumping ship before s/he can be pushed over the side by the employer. It is a resignation, but it is not treated as such if the employee has good grounds for terminating the contract of employment.
In terms of Section 95(1)(c) of the Employment Rights Act 1996, constructive dismissal is defined in the following terms:
‘the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct.’
The key phrase here is ‘by reason of the employer’s conduct’ and this is the reason why the employee has chosen to end the employment relationship.
The employee’s right to claim constructive dismissal arises in situations where the employer’s conduct is to be regarded as a material breach of the employment contract and the employee is left with no alternative but to resign. Normally, a resignation would not be regarded as a dismissal: if an employee resigned in a fit of pique s/he would not be entitled to claim State benefits (Universal Credit).
The employer’s conduct must be so serious in order to justify the employee’s decision to resign. When an employee claims that he has been constructively dismissed, he is claiming that he was unfairly dismissed. The right of constructive dismissal would arise in situations where the employer made unauthorised deductions from wages; subjected to bullying and harassment; where the employer refused to follow the proper disciplinary or grievance procedures; or where the employee was ordered to use equipment that was clearly dangerous or sub-standard.
In the well known case of Sharp v Western Excavating Ltd  All ER 713,  ICR 221, Lord Denning laid down the essential conditions for constructive dismissal:
“An employee is entitled to treat himself as constructively dismissed if the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer’s conduct. He is then constructively dismissed. The employee is then entitled in those circumstances to leave at that instant without giving any notice at all or, alternatively, he may give notice and say that he is leaving at the end of the notice. But the conduct in either case must be sufficiently serious to entitle him to leave at once. …. the employee must make up his mind soon after the conduct of which he complains. If he continues for any length of time without leaving, he will be treated as having elected to affirm the contract and he will lose his right to treat himself as discharged.”
In Wishaw & District Housing Association v Moncrieff 2009, the Employment Appeal Tribunal in Scotland provided helpful guidelines for Employment Tribunals when dealing with claims for constructive dismissal.
According to Lady Smith, the President of the Employment Appeal Tribunal, an Employment Tribunal dealing with unfair constructive dismissal must have regard to the following issues:
1. The specific incident which led the employee to resign from employment (the so called last straw) must be pinpointed;
2. Once this incident has been pinpointed, the Tribunal must carry out an objective assessment to judge whether it can contribute to a chain of events which taken together convey the overall impression that the employer has breached its implied duty of trust and confidence; and
3. If the incident has the potential to be viewed as breach of the duty of trust and confidence does it in fact constitute the last straw in a chain of events which would permit the affected employee to treat himself as constructively dismissed?
In constructive dismissal claims, the employee is alleging that the employer’s behaviour has effectively destroyed the employment contract by committing a material breach. However, employees must be careful: the employer’s conduct must be so serious that it allows the employee to treat herself as dismissed.
Employees should take proper legal advice before taking such a step. It could be disastrous if they get it wrong. Get it right and employees can claim unfair dismissal. Stella English, 2010 winner of the BBC’s “The Apprentice” television programme knows all about getting it wrong. Ms English resigned from employment with Lord Sugar and claimed constructive dismissal. Her action failed (see Stella English v Amshold Group Ltd Case No 3200079/12).
In Nationwide Building Society v Niblett  UKEAT/0524/08, was very clear that merely because an employer has behaved unreasonably towards an employee does not necessarily provide grounds for claiming constructive, unfair dismissal:
“It is not the law that an employee can resign without notice merely because an employer has behaved unreasonably in some respect. In the context of the implied term of trust and confidence, the employer’s conduct must be without proper and reasonable cause and must be calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee“.
In August 2019, a story which was widely reported in the British media, caught my attention: the abrupt dismissal of Sonia Khan as a special adviser (or ‘Spad’) with the UK Government. Ms Khan had worked for two previous Chancellors of the Exchequer (the UK Finance Minister). She was summoned to a meeting with Dominic Cummings, the UK Prime Minister’s top political adviser and sacked. Ms Khan was ordered to surrender her security passes and escorted from Downing Street by an armed Police Officer. All in all, it was a very undignified and humiliating exit for Ms Khan. Needless to say, Mr Cummings did not follow any disciplinary procedure when he made the decision to give Ms Khan her marching orders.
This decision was far from wise and Ms Khan has an extremely strong case for unfair dismissal in terms of the Employment Rights Act 1996 (she has the necessary continuous service of more than 2 years required to bring such a claim and no warnings were issued to her).
This affair led to me think about humiliating dismissals by employers and whether the affected employee could claim damages for the manner of their sacking? In other words, can the sacked employee claim that their feelings were injured as a result of the way in which they s/he was dismissed?
Links to articles about Sonia Khan’s dismissal can be found below:
When discussing discrimination claims in terms of the Equality Act 2010 (primarily), I often stress the issue of injury to feelings as an element that will be included in the calculation of a final award by an Employment Tribunal.
In several Blogs (please see the end of this article for the relevant links), I have discussed the importance of the Vento Guidelines or Scale.
In Vento v Chief Constable of West Yorkshire Police (No 2)  EWCA Civ 1871 compensation limits of £15–25,000 were laid down in situations where injury to feelings was involved in cases involving sex and race discrimination. In Sturdy v Leeds Teaching Hospitals NHS Trust ET Case 1803960/2007 14th and 15th April 2009 the Employment Tribunal decided that, since Vento had been decided in 2003, a higher rate of inflation had to be considered hence the increased award made to a victim of age discrimination.
These awards for injury or hurt feelings have now become known as the Vento Guidelines and in Da’Bell v National Society for the Prevention of Cruelty to Children(2009)EAT/0227/09, the Employment Appeal Tribunal (sitting for England and Wales) brought them into line with inflation.
Since Da’Bell, the Vento guidelines are usually updated annually in line with inflation.
The current bands or scales (from 6 April 2020) are:
♦ £900 to £9,000 for the lower band
♦ £9,000 to £27,000 for the middle band
♦ £27,000 to £45,000 for the top band
What’s the situation with unfair dismissal claims?
In Dunnachie v Kingston upon Hull City Council  EWCA Civ 84, the English Court of Appeal set the cat amongst the pigeons when it stated that a compensatory award for unfair dismissal could also include injury to an employee’s feelings. The Court of Appeal was clearly relying upon an obiter remark made by Lord Hoffman during the decision of the House of Lords in Johnson v Unisys  UKHL 13.
As far back as the decision by the short lived National Industrial Relations Court (1971-1974) in Norton Tool Co Ltd v Tewson EW Misc 1, the position was quite clear: the compensatory award in unfair dismissal claims did not include injury to an employee’s feelings in connection with the manner of the dismissal suffered by him or her.
Lord Hoffman’s obiter statement and the decision by the Court of Appeal in Dunnachie appeared to place this principle in considerable jeopardy and opened the door to what could have been a potentially significant, new development in unfair dismissal case law. Clearly, it would be advantageous for the House of Lords to provide a definitive ruling on this matter.
Subsequently, Kingston upon Hull City Council appealed against the judgement of the Court of Appeal to the House of Lords.
On Thursday 15th July 2004, the House of Lords delivered its judgement in this case ( UKHL 36). Their Lordships (Lord Hoffman amongst them – ironically) killed off any idea that an award for unfair dismissal could include injury to an employee’s feelings for the manner of the dismissal.
Compensation, therefore, in unfair dismissal claims will be concerned with the employee’s economic losses only.
The decision of the House of Lords in Dunnachie v Kingston upon Hull City Council  UKHL 36 was and remains a clear restatement of the orthodox position as set down by Sir John Donaldson all those years ago in Norton Tool Co Ltd.
As Lord Steyn, one of the Law Lords, remarked in Dunnachie:
“On the other hand, the correctness of the Norton Tool decision was not an issue in Johnson v Unisys. It is true that there were references by both sides in the oral argument to Norton Tool. But the House heard no adversarial argument exploring the correctness or otherwise of that decision. In these circumstances a definitive overruling of a decision which had stood for nearly 30 years would have been a little surprising.”
In fact, Lord Hoffman’s observation (and it was nothing more than observation we are now assured) could in no way be interpreted as an attempt to overturn a long-standing and well-established legal principle. Lord Hoffman, in Johnson v Unisys , was not “inviting the House to overrule a longstanding decision on a point of statutory construction that was not in issue and not explored in opposing arguments.” The statement by Lord Hoffman was clearly obiter dictum i.e. things said by the way which do not form part of the actual court’s judgement and that was the end of the matter.
In the UK, the beginning of April is always an important period for employment lawyers because the British Government and/or the Westminster Parliament typically introduce new laws which directly impact on people’s terms and conditions of employment.
There is no such thing as one document which contains all the terms of an employment contract – something that my students and members of the public have difficulty understanding at first. It is important to grasp from the outset that there are various sources of the employment contract which include, amongst other things:
The written statement of the main terms and conditions of the contract (as per Section 1 of the Employment Rights Act 1996)
Employee handbooks (e.g. available on employer’s intranet)
Employer’s policies and codes of conduct (e.g. disciplinary codes)
EU Laws, Acts of Parliament and statutory instruments (e.g. Employment Rights Act 1996, Equality Act 2010, TUPE Regulations 2006, Equal Treatment Directives)
Judicial precedent and the common law (e.g. Walker v Northumberland County Council 1 AER 737)
Today new rules come into force about the written statement of the main terms of employment. Previously, only employees were entitled to receive such a document which had to be issued by an employer within 8 weeks of the commencement of employment (as per Section 1 of the Employment Rights Act 1996). Now, an employer must issue a written statement to both employees and workers from or before day 1 of their employment or engagement.
The written statement will contain important information about the contract of employment, such as:
The employee’s name
The employer’s name
Date when employment commenced and period of continuous service
The rate of pay and how often the employee is paid
Sick pay entitlement
Pensionable service and details of employer’s pension scheme
Job title or brief JOD description
Whether the job is permanent/temporary/fixed term
The location of the employee’s place of work
The existence of collective agreements and how they affect the contract
Arrangements for working outside the UK (if relevant)
Details of disciplinary and grievance procedures
Furthermore, as a result of today’s changes to the law, the written statement must also address the following matters:
The hours and days of the week that the employee/worker must work for the employer and whether they can be changed and the mechanism for doing so
Entitlement to any paid leave
Entitlement to contractual benefits which have not already been addressed in the written statement
Probationary periods (if relevant)
Training opportunities provided by the employer
The legal status of the written agreement
The written statement is not the contract of employment itself because no single document could possibly encompass all the terms of such an agreement. There is nothing to stop the parties adopting the statement as the contract of employment, but it is important to understand that it can be varied or altered as a result of legislative changes, court decisions and collective agreements.
As of today, entitlement to leave for bereaved parents is being introduced; increases to the National Minimum and Living Wages come into force; and increases to a range of statutory payments are also taking place. With all of this going on, it would be very difficult – if not impossible – for any written statement to express the totality of the employment contract in any meaningful sense.
Failure to issue a written statement
Section 38 of the Employment Act 2002 gives employees the right to pursue an Employment Tribunal claim against an employer for failure to issue a written statement. This type of claim would usually be brought by an employee as part of another claim against the employer e.g. dismissal or discrimination claims. In such an instance, the employee would state on the Tribunal application (the ‘ET1’) that the employer had failed to issue written terms. It is always worthwhile submitting this type of claim as part of the bigger picture of the employee’s grievance because an Employment Tribunal could issue an award worth up to 4 weeks’ wages.
Any employee who is dismissed by the employer for requesting their statutory right to receive a written statement will have the right to pursue a claim for unfair dismissal in terms of the Employment Rights Act 1996.
An example of an extract taken from an ET1 form can be seen below:
The right to receive a written statement was, previously, a very important indication of a person’s employment status i.e. whether they had a contract of service in terms of Section 230 of the Employment Rights Act 1996 – as opposed to a contract for services.
In the leading House of Lords’ decision – Carmichael v National Power plc IRLR 43, two women who were engaged on casual as required contracts as tour guides at the (now demolished) Blyth Power Plant in Northumberland were not entitled to receive written statements of employment because they were engaged under a contract for services. There was no mutuality of obligation between the parties in that National Power was not obliged to offer the women work and the two women, if offered work, were not obliged to accept it. With today’s changes to the Employment Rights Act 1996, the two women in Carmichael would now be entitled to receive a written statement.
A link to the UK Government’s website which provides (free) access to a blank template for employers to generate their own written statement can be found below:
One of the most important common law duties that an employer has under the contract of employment is to pay wages to the employee.
This duty, of course, is contingent upon the employee carrying out his or her side of the bargain i.e. performing their contractual duties.
The right to be paid fully and on time is a basic right of any employee. Failure by employers to pay wages (wholly or partially) or to delay payment is a serious contractual breach.
Historically, employers could exploit employees by paying them in vouchers or other commodities. Often, these vouchers could be exchanged only in the factory shop. This led Parliament to pass the Truck Acts to prevent such abuses.
Sections 13-27 of the Employment Rights Act 1996 (which replaced the Wages Act 1986) give employees some very important rights as regards the payment of wages.
The National Minimum Wage Act 1998 (and the associated statutory instruments) and the Equality Act 2010also contain important provisions about wages and other contractual benefits.
There are a number of key issues regarding the payment of wages:
All employees are entitled to an individual written pay statement (whether a hard or electronic copy)
The written pay statement must contain certain information
Pay slips/statements must be given on or before the pay date
Fixed pay deductions must be shown with detailed amounts and reasons for the deductions e.g. Tax, pensions and national insurance
Part time workers must get same rate as full time workers (on a pro rata basis)
Most workers entitled to be paid the National Minimum Wage or the National Minimum Living Wage (if over age 25) (NMW)
Some workers under age 19 may be entitled to the apprentice rate
Most workers (please note not just employees) are entitled to receive the NMW i.e. over school leaving age. NMW rates are reviewed each year by the Low Pay Commission and changes are usually announced from 1 April each year.
It is a criminal offence not to pay workers the NMW and they can also take (civil) legal action before an Employment Tribunal (or Industrial Tribunal in Northern Ireland) in order to assert this important statutory right.
There are certain individuals who are not entitled to receive the NMW:
Members of the Armed Forces
Genuinely self-employed persons
Students doing work placements as part of their studies
Workers on certain training schemes
Members of religious communities
Can be lawful when made by employers …
… but in certain, limited circumstances only.
When exactly are deductions from pay lawful?:
Required or authorised by legislation (e.g. income tax or national insurance deductions);
It is authorised by the worker’s contract – provided the worker has been given a written copy of the relevant terms or a written explanation of them before it is made;
The consent of the worker has been obtained in writing before deduction is made.
Extra protection exists for individuals working in the retail sector making it illegal for employers to deduct more than 10% from the gross amount of any payment of wages (except the final payment on termination of employment).
Employees can take a claim to an Employment Tribunal for unpaid wages or unauthorised deductions from wages. They must do so within 3 months (minus 1 day) from the date that wages should have been paid or, if the deduction is an ongoing one, the time limit runs from the date of the last relevant deduction.
An example of a claim for unpaid wages can be seen below:
Regular readers of the Blog will be aware of the provisions of the Equality Act 2010 in relation to pay and contractual benefits. It will amount to unlawful sex discrimination if an employer pays a female worker less than her male comparator if they are doing:
Work of equal value
Work rated equivalent
Some employees may be entitled to receive pay from the employer while absent from work due to ill health e.g. 6 months’ full pay & then 6 months’ half pay. An example of this can be seen below:
Statutory Sick Pay (SSP)
This is relevant in situations where employees are not entitled to receive contractual sick pay. Pre (and probably post Coronavirus crisis) it was payable from the 4th day of sickness absence only. Since the outbreak of the virus, statutory sick pay can paid from the first day of absence for those who either are infected with the virus or are self-isolating.
Contractual sick pay is often much more generous than SSP
2020: £95.85 per week from 6 April (compared to £94.25 SSP in 2019) which is payable for up to 28 weeks.
To be eligible for SSP, the claimant must be an employee earning at least £120 (before tax) per week.
Employees wishing to claim SSP submit a claim in writing (if requested) to their employer who may set a deadline for claims. If the employee doesn’t qualify for SSP, s/he may be eligible for Employment and Support Allowance.
As per the Working Time Regulations 1998 (as amended), workers entitled to 5.6 weeks paid holiday entitlement (usually translates into 28 days) per year (Bank and public holidays can be included in this figure).
Some workers do far better in terms of holiday entitlement e.g. teachers and lecturers.
Part-time workers get holiday leave on a pro rata basis: a worker works 3 days a week will have their entitlement calculated by multiplying 3 by 5.6 which comes to 16.8 days of annual paid leave.
Employers usually nominate a date in the year when accrual of holiday pay/entitlement begins e.g. 1 September to 31st August each year. If employees leave during the holiday year, their accrued holiday pay will be part of any final payment they receive.
Holiday entitlement means that workers have the right to:
get paid for leave that they build up (‘accrue’) in respect of holiday entitlement during maternity, paternity and adoption leave
build up holiday entitlement while off work sick
choose to take holiday(s) instead of sick leave.
Lay-offs & short-time working
Employers can ask you to stay at home or take unpaid leave (lay-offs/short time working) if there’s not enough work for you as an alternative to making redundancies. There should be a clause in the contract of employment addressing such a contingency.
Employees are entitled to guarantee pay during lay-off or short-time working. The maximum which can be paid is £30 a day for 5 days in any 3-month period – so a maximum of £150 can be paid to the employee in question.
If the employee usually earn less than £30 a day, s/he will get their normal daily rate. Part-time employees will be paid on a pro rata basis.
How long can employees be laid-off/placed on short-time working?
There’s no limit for how long employees can be laid-off or put on short-time. They could apply for redundancy and claim redundancy pay if the lay-off/short-term working period has been:
4 weeks in a row
6 weeks in a 13-week period
Eligibility for statutory lay-off
To be eligible, employees must:
have been employed continuously for 1 month (includes part-time workers)
reasonably make sure you’re available for work
not refuse any reasonable alternative work (including work not in the contract)
Not have been laid-off because of industrial action
Employer may have their own guarantee pay scheme
It can’t be less than the statutory arrangements.
If you get employer’s payments, you don’t get statutory pay in addition to this
Failure to receive guarantee payments can give rise to Employment Tribunal claims.
This is an extremely relevant issue with Coronavirus, but many employers are choosing to take advantage of the UK Government’s Furlough Scheme whereby the State meets 80% of the cost of an employee’s wages because the business is prevented from trading.
If an employee is being made redundant, s/he may be entitled to receive a statutory redundancy payment. To be eligible for such a payment, employees must have been employed continuously for more than 2 years.
The current weekly pay used to calculate redundancy payments is £525.
Employees will receive:
half a week’s pay for each full year that they were employed under 22 years old
one week’s pay for each full year they were employed between 22 and 40 years old
one and half week’s pay for each full year they were employed from age 41 or older
Redundancy payments are capped at £525 a week (£508 if you were made redundant before 6 April 2019).
Please find below a link which helps employees facing redundancy to calculate their redundancy payment:
What happens if the employer becomes insolvent and goes into liquidation?
Ultimately, the State will pay employees their wages, redundancy pay, holiday pay and unpaid commission that they would have been owed. This why the UK Government maintains a social security fund supported by national insurance contributions.
An example of a UK business forced into liquidation can be seen below:
Up to 900 workers lost their jobs when administrators closed 70 of the cafe chain’s outlets. Disclaimer:
Payment of wages is one of the most important duties that an employer must fulfil. It is also an area which is highly regulated by law, for example:
The common law
The Employment Rights Act 1996
The Working Time Regulations 1998
The National Minimum Wage Act 1998
The Equality Act 2010
Family friendly legislation e.g. adoption, bereavement, maternity, paternity
Failure by an employer to pay an employee (and workers) their wages and other entitlements can lead to the possibility of claims being submitted to an Employment Tribunal. The basic advice to employers is make sure you stay on top of this important area of employment law because it changes on a regular basis and ignorance of the law is no excuse.
Today, the UK Supreme Court has decided that Barclays Bank PLC is not liable for the wrongful and criminal actions of an independent contractor (a medical doctor) that it engaged – see Barclays Bank PLC v Various Claimants  UKSC 13 overturning the Court of Appeal’s judgement of 2018.
Links to the judgement and the Court’s press release can be found below:
Balaclavas can be very useful things to have to hand – when the weather is very cold or you’re discussing the Crimean War (1853-1856) from where the term for the garment originates in the United Kingdom (circa 1881, according to the historian and cleric, Richard Rutt). During the Crimean War, British soldiers wore the garment to cope with the sub-zero temperatures that they experienced during the winter months of the Campaign.
Today, the garments are still incredibly popular with cyclists and winter sports’ enthusiasts (I confess: I have two for cycling during the winter months and they’re great!).
Despite, the historical associations with the British Army’s involvement in the Crimean War, it’s not always advisable to use the Balaclava as a teaching aid for History classes – especially DIY History classes.
McClean, an Irish footballer playing for the English Championship side, Stoke City FC, has recently found this out to his cost.
In a bizarre social media post (on Instagram), McClean put a picture of himself wearing a Balaclava as he was talking to two children. What was the point of this strange exercise? McClean claims that he was teaching the children about history, but others have seen this as an endorsement of paramilitary groups – particularly the Provisional IRA.
There was a public backlash and McClean was fined by this Club. The player is something of a controversial figure to many as he routinely refuses to have a poppy printed on his football jersey in the run-up to Remembrance Day commemorations each November in the United Kingdom.
McClean hails from the City of Derry in the North of Ireland which will be forever associated with the events of ‘Bloody Sunday’ on 30 January 1972. On that day, 13 innocent Civil Rights marchers were shot and killed without justification by members of the Parachute Regiment – as per the conclusions of Lord Saville’s Report (2010) which contradicted Lord Widgery’s findings published in April 1972. The Saville Inquiry took 12.5 years and cost the British taxpayer £191.5 million – the longest and most expensive inquiry ever in the United Kingdom (figures obtained from The Spectator).
The previous Widgery Report was seen by many in the Republican and Nationalist community as a cover-up and a whitewash in that it absolved the Parachute Regiment of any wrong-doing for the deaths. Inevitably, the Report fuelled a long lasting sense of grievance within this community. McClean grew up on Derry’s Creggan Estate – not far from St Mary’s Church where many of the funerals of the ‘Bloody Sunday’ victims took place.
We often forget that footballers can be employees i.e. have a contract of service with their Clubs as per Section 230 of the Employment Rights Act 1996. McClean is fortunate that he has retained his post; other, less famous employees might not have been so lucky.
Section 98(4) of the Employment Rights Act 1996 permits an employer to dismiss an employee (potentially) fairly by reason of his/her conduct (with the proviso, of course, that the employer follows proper procedures in line with current ACAS standards).
McClean might initially have protested that the social media post was done while he was outside working hours. Regular readers of this Blog will be well aware that this type of excuse is extremely naive at best. Yes, employees do have a right to privacy, in terms of the European Convention on Human Rights, but this is never absolute – especially if an employer can argue that the behaviour of an individual employed by him or her has caused reputational damage to the organisation.
Employers do have a part to play here: they have a duty to have clear and consistent guidelines on employee social media use within and outwith the work-place. It should go without saying (but I’ll say it anyway) that the employer should make sure that employees are aware of the existence of such guidelines and have actually read them.
The misbehaviour or misconduct of employees which takes place outside working hours can have a really serious reputational impact on your employer. Individuals, like McClean, with high profiles in the community should be aware of this. It won’t be the last time that we read about someone who is deemed to be a role model – a teacher or a sporting personality – who misbehaves outside work and pays the price for this type of behaviour.
A link to the story on the Sky News website can be found below:
I never thought that the subject of impossibility and frustration in relation to contract would become such a popular topic of everyday conversation; but it has.
The phrase “force majeure” has also been making more of an appearance than is commonly the case.
The continuing fallout from Coronavirus or COVID-19 has led to all sorts of sporting and cultural events being cancelled or postponed. We are also about to enter the holiday season with the Spring Break and Easter Weekend just over the horizon. Many people will have booked getaways to foreign climes and events have now completely overtaken such plans.
Critically, thousands of people will have paid something up front for football season tickets and holidays and they will be anxious to know where they stand legally.
Hearts owner Ann Budge says she would consider legal action should her club be relegated from the Scottish Premiership with eight games left:
There are two ways of dealing with an unexpected situation which affects contractual performance: being reactive or being farsighted.
At the moment, the scale of COVID-19 has completely taken Governments, societies, business, cultural, sporting organisations and individuals completely by surprise. So, in a sense, we are being forced to react to changing circumstances and rely upon established legal contractual principles which govern the termination of agreements i.e. frustration, impossibility and illegality. More about these matters shortly.
As lawyers, could we have pre-empted or foreseen that events (I’m speaking in the general sense here) might render contractual performance highly unlikely or well nigh impossible? Well, yes the concept of Force Majeure clauses is recognised in contract law – although the linguists amongst us may recognise that it’s not a native species of English or Scots law.
“words ‘force majeure’ are not words which we generally find in an English contract. They are taken from the Code Napoleon and they were inserted by this Romanian gentleman or by his advisers, who were no doubt familiar with their use on the Continent.”
In the English case of Matsoukis v Priestman 1 KB 681 Bailhace J in English High Court noted that the:
Bailhace J was of the view that force majeure clauses could cover events such as industrial action, but certainly not bad weather or football or funerals.
Yet in the later English High Court decision LebeaupinvRichard Crispin2 KB 714, force majeure was given a much broader meaning to include events such as war, bad weather, industrial action and, interestingly, epidemics. That said McCardie J was at pains to point out:
“A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The eﬀect of the clause may vary with each instrument.”
Essentially, such clauses are inserted into contracts to deal with the consequences of events outwith the control of the parties which may render performance of the contract impossible.
Ross Campbell of Brodies Solicitors who has pointed out that the rules of last year’s Rugby World Cup tournament in Japan contained a force majeure clause addressing the cancellation of matches due to extreme weather. The clause was not utilised and, therefore, not challenged, but it’s an interesting example of how parties to an agreement might attempt to address situations which can have serious consequences for contractual performance.
A link to Ross Campbell’s article can be found below:
The very phrase force majeure conjuresup images of an unstoppable force that sweeps away the accepted rules or conventions – almost akin to the idea of damnum fatale or an act of God.
So whether, will the courts permit the application of a force majeure clause will turn on the wording of the clause.
Could anyone have predicted the situation that we are now in with COVID-19 and drafted an appropriate clause to address these unprecedented times? It’s extremely doubtful. I’m not pretending to be Nostradamus (or for our Scottish readers, the Brahan Seer or Thomas the Rhymer) when I predict that many lawyers and their clients will actively be looking at the usefulness of force majeure clauses.
Triggering a force majeure clause
For those parties wishing to rely upon force majeure clauses, drafting the term may be crucially important. It might be highly advisable to have a list of events or circumstances which trigger operation of the clause; and then have a catch-all provision or belt and braces term to cover things you might not have explicitly specified (as per McCardie J’s remarks in Lebeaupin v Richard Crispin . Be aware, however, that extremely wide catch-all provisions may be disallowed because they are not within the normal meaning of the term (see Tandrin Aviation Holdings Ltd v Aero Toy Store LLC  EWHC 40 (Comm)).
Frustration, impossibility and illegality
Let’s now turn to situations where individuals have to react to unexpected events without having the benefit of a force majeure clause in the agreement.
Since the formation of a contract, circumstances affecting the agreement may have changed dramatically (i.e. the pandemic). The contract may now be impossible to perform or the contract may have been rendered illegal by changes in the law.
Physical destruction of the subject-matter of the contract can also frustrate contracts.
Perhaps one of the best known examples of frustration can be seen in the case below:
Taylor v Caldwell (1863) the Surrey Gardens and Music Hall was hired by the pursuers from the defenders for the purpose of holding four grand concerts and fêtes. Before the first concert on 17 June 1862 could took place, the hall was completely destroyed by fire. Neither party was responsible for this incident. The pursuers, however, brought an action for damages against the defenders for wasted advertising costs.
Held: By the English High Court that it was clearly impossible for the contract to be performed because it relied on the continuing existence of the venue. The pursuers claim for damages was dismissed on the grounds that the purpose of the contract had been frustrated.
In another case, Vitol SA v Esso Australia 1988The Times 1 February 1988, a contract for the sale of petroleum was discharged on the grounds of frustration when both the ship and its cargo of petroleum were completely destroyed in a missile attack in the Persian Gulf during the Iran-Iraq War (1980-1988). The sellers had attempted to sue the buyers for the price of the goods, but this claim was dismissed.
The ‘coronation’ cases
Two famous cases which are particularly instructive are the ‘Coronation Cases’ because they concern the consequences of changing circumstances. Both cases arose due to the illness of King Edward VII. The new King was unable to participate or attend a variety of events to celebrate his accession to the British throne following the death of his mother, Queen Victoria.
The English Court of Appeal took different approaches in each of the cases:
Krell v Henry  2 KB 740 the pursuer was the owner of a flat in the central London district of Pall Mall. The pursuer’s flat was on the route of the proposed coronation procession of the new King, Edward VII, which was scheduled to take place on 26 and 27 June 1902. The pursuer had advertised his flat for rent during the daytime on 26 and 27 June for the purpose of viewing the procession. The defender, who was anxious to view the procession, responded to the advertisement and entered into an agreement to hire the flat on the days specified. An announcement was made on 24 June stating that the procession was to be cancelled owing to the King’s illness. The defender refused to pay the balance of the rent for the flat by reason that events had frustrated performance of the contract. The pursuer brought an action against the defender for payment of the balance of the rent.
Held: by the English Court of Appeal that the cancellation of the event frustrated the contract and discharged the parties from their obligations under it. The clinching argument in the defender’s favour was that both parties clearly entered into the contract with the same intention.
The reason behind the hire of the flat was, therefore, a material term of the contract. Had the defender failed to communicate his motivation for hiring the flat, then the contract would have remained capable of enforcement by the pursuer.
Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It was also important to identify the substance or the purpose of the agreement. In other words, did the parties share the same intentions?
The illness of King Edward resulted in a second legal action. This time, however, the English Court of Appeal took a completely different approach to the issue of frustration of contract.
Herne Bay Steamboat Co v Hutton  2 KB 683 the pursuers had entered into a contract to hire a steamship to the defender for two days. The Royal Navy was assembling at Spithead to take part in a naval review to celebrate King Edward’s coronation.
The King was to review the fleet personally. The defender wished to transport paying guests from Herne Bay to Spithead to see the naval review. Due to the King’s illness, an official announcement was made cancelling the review. It would still have been perfectly possible for the defender to take his passengers on a cruise to see the assembled fleet. The defender, however, refused to use the vessel claiming that the contract had been frustrated. The pursuers brought an action against the defender for the balance of the fee of £250 (a considerable sum in those times) owed by the defender who was refusing to pay for the hire of the boat.
Held: the contract was not discharged by reason of frustration. The main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet.
Why the difference in approach?
In Krell v Henry , Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract.
The difference in Herne Bay Steamboat Co v Hutton  was that the contract was the main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet – despite the fact that King Edward VII would not be personally reviewing the fleet due to his unexpected illness.
This difference in approach taken by the Court of Appeal in both cases is sometimes difficult to understand. In Krell v Henry, both parties had clearly intended that the purpose of the contract was to view the coronation procession (which was postponed). Reinforcing this fact, was the fact that the defender was only entitled to use the flat during the daytime.
In Herne Bay Steamboat Co v Hutton, the purpose of the defender in hiring the steamship was to see the naval review, but this was not the purpose of the owners who were not the slightest bit interested why the vessel had been hired.
Lord Justice Vaughn-Williams compared the situation in Herne Bay Steamboat Co to someone who hires a carriage to go and see the Epsom Derby, but the outbreak of some unforeseen epidemic means that the races are cancelled. This makes no difference to the owner of the carriage who will still expect to be paid for the hire of his vehicle.
It will, however, be important to identify the substance or the purpose of the agreement. The cancellation of an event can frustrate the performance of a contract where that event is an absolutely material term of the agreement.
The limits of frustration …
Frustration can only be used to have the contract discharged in situations where neither party is to blame. When one party is to blame for the failure to perform his obligations under the agreement, this represents a breach of contract and the innocent party can raise the appropriate action.
Tsakiroglou v Noblee Thorl GmbH  2 ALL ER 179 the sellers had agreed to transport Sudanese ground nuts from Port Sudan in the Red Sea to Hamburg in Germany. The ship was to take the fastest route to Europe through the Suez Canal. This proved to be impossible because the Canal was closed as a result of military hostilities following the Anglo-French-Israeli invasion of Egypt causing the Suez Crisis in late 1956. The sellers would have to ship the goods around the alternative route of the Cape of Good Hope in South Africa. This meant that the distance the ship had to travel from Port Sudan to Hamburg was greatly increased and this would also mean a dramatic increase in the costs of carriage in respect of the goods.
Held: by the House of Lords that a party will still have a duty to perform a contract even if this means that performance is more difficult or expensive than was originally intended by the parties. The closure of the Suez Canal did not mean that the sellers’ duties were discharged by reason of frustration of contract.
Contracts for personal services
Such a contract is discharged by the death of the person who was to perform it. The incapacity of a person who is to perform a contract may discharge it. However, temporary incapacity is not enough unless it affects the performance of the contract in a really serious way. If an employee is killed or permanently incapacitated, it will be very difficult to argue that the employment contract should be allowed to continue. Employees who have had a lengthy prison sentence imposed on them by a criminal court may find it very difficult to argue against the employer’s proposition that the contract of employment has been terminated by reason of frustration.
Some words of warning: the courts may be unwilling to use frustration as a means of terminating an employment contract if other ways of achieving this result are available. This could occur in situations where it is possible for the employer to dismiss the employee entirely fairly by reason of a lack of capability (e.g. on grounds of ill health) as per the Employment Relations Act 1996.
Notable cases on frustration in connection with employment contracts include the following:
Davis Contractors Ltd v Fareham UDC  AC 696
Marshall v Harland & Wolff IRLR90
G F Sharp & Co Ltd v McMillan IRLR 632
The purpose of the contract becomes impossible to perform
As we have seen, a situation involving the physical destruction of the subject-matter of the contract will discharge the parties from performance of their duties by reason of frustration. However, frustration can also occur in situations where physical destruction of the subject-matter of the contract may not be the issue.
Jackson v Union Marine Insurance Co (1874) LR 10 CP 125 the pursuer owned a ship which had been chartered to go with all possible speed from Liverpool to Newport for the purpose of loading a cargo bound for San Francisco. The pursuer had insurance with the defenders to protect himself in the event that the charter might be prevented from being carried out. The vessel was stranded whilst on its way to Newport. It was not refloated for over a month and could not be properly repaired for some time. The charterers hired another ship and the pursuer turned to the insurers. They suggested that the pursuer should sue the charterer for breach.
Held: the fact that the ship was stranded effectively frustrated the agreement’s commercial purpose and, therefore, the charterers were free to go elsewhere. The pursuer had no remedy against the charterers and was in turn entitled to seek compensation under the insurance policy.
We are seeing the introduction of emergency powers legislation across the World in response to COVID-19 and this will undoubtedly have a huge impact on a range of contractual obligations. Many European Union countries have reintroduced border controls and curbs on free movement of persons which would normally be a clear breach of European Treaties (e.g. the Treaty on the Functioning of the European Union; the Treaty on European Union; and the Schengen Agreement), but these are not normal times. These drastic measures can all be justified on grounds of public security and public health – legitimate derogations or grounds for withdrawal from key EU legal principles. Travel and tourism will obviously be disproportionately affected by these restrictions.
Contracts can become illegal because Parliament introduces legislation to this effect. After the murder of schoolchildren and a teacher at Dunblane Primary School in 1996 by Thomas Hamilton, the British government made it illegal to own particular models of firearms. Therefore, anyone who entered a contract to purchase firearms shortly before the legislation was introduced could not force the supplier to perform the contract. If the buyer insisted on performance of the contract by the seller, the seller would be complying with his contractual duty, but he would also be breaking the law as the contract would be illegal.
Events can also make further or future performance of contracts illegal e.g. the outbreak of war. Two House of Lords’ decisions are excellent authority for this proposition –
Stevenson & Sons Ltd v AG für Cartonnagen Industrie (1918) AC 239 an English company, Stevenson, was in partnership with a German company acting as a sole agent to sell the German company’s goods. By continuing to carry on business with an enemy during wartime (the First World War had broken out), Stevenson would be committing a criminal act and there was no alternative but to have the partnership dissolved (see also Cantiere San Rocco SA v Clyde Shipbuilding & Engineering Co Ltd (1923) SC (HL) 105 where, again, the First World War had a similar effect on a contract between a Scottish company and an Austrian buyer of a ship).
The Coronavirus or COVID-19 is not merely a health issue – it has also become something of a legal minefield for society. This is where knowledge of the circumstances of termination of contractual obligations and performance is vital. The doctrine of frustration, impossibility and supervening illegality are highly relevant to this debate.
Doubtless, the use of force majeure clauses will become more common – especially, if as predicted, we are going to be experiencing further waves of disruption due to this pandemic.