Neutral Citation Number: [2010] EWHC 8 (QB)
Case No: HQ08X05103
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 07/01/2010

Before :

THE HON MR JUSTICE EDWARDS-STUART
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Between :

	BRITISH TELECOMMUNICATIONS PLC
	Claimant	
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ROYAL MAIL GROUP LTD	
Defendant	

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Andrew Hogarth QC and Sarah Beslee (instructed by BT Legal Dept) for the Claimant
Michael Kent QC (instructed by Plexus Law) for the Defendant

Hearing dates: 03/11/2009, 04/11/2009 & 05/11/2009
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Judgment
Mr Justice Edwards-Stuart : 
Introduction
1.	On 1 October 1981, by the British Telecommunications Act 1981 ("the Act"), the telecommunications business of the Post Office was transferred to a new statutory corporation, British Telecommunications.  This was in anticipation of the subsequent privatisation of British Telecommunications a few years later.
2.	The issue in the case is the extent to which, if at all, the liability to pay damages to former employees of the Post Office in respect of injuries sustained whilst carrying out work for the telecommunications part of the Post Office’s undertaking was transferred to British Telecommunications ("BT").  The Claimant, British Telecommunications plc ("BT plc"), asserts that such liabilities were not transferred, whereas the Defendant, Royal Mail Group ("RMG"), asserts that they were.  The outcome turns on the meaning of section 10 and Schedule 2 to the Act.
3.	At some stage in the late 1960s the Post Office was divided for management purposes into three parts, one dealing with telecommunications, one with the postal service and the third with the engineering functions of both parts of the business - but all within the same the legal entity. It appears that many of the employees exposed to asbestos dust prior to 1 October 1981 were engineers of one type or another and may have been employed within the engineering function which provided services to both of the other two business units.
4.	Very sadly, many of these employees subsequently contracted asbestosis or, worse still, mesothelioma.  The latter disease is notorious because it has an exceptionally long latency period, typically 20-25 years, and is invariably fatal.  Since 1981 several men who worked for the Post Office have died of this disease and their executors or dependants have made claims against BT plc and/or RMG.  The two companies have, very sensibly and properly, agreed to share liability for the claims on a 50:50 basis pending the outcome of this litigation.
5.	There is one further aspect of the dispute that I must mention.  The Post Office was a statutory corporation, incorporated by the Post Office Act 1969.  Prior to that date those who worked in the Post Office had been civil servants appointed by the Postmaster General.  There is an issue as to whether such people were employed under a contract of employment, or just employed at the pleasure of the Crown in circumstances that gave rise to no legally binding obligations.  It may be helpful to deal with this issue first.
The status of those who worked for the Postmaster General
6.	The submission of Mr Michael Kent QC, who appeared for RMG, was that they were civil servants who, whilst employed in the usual sense of that word, were not employed pursuant to any contract of employment.
7.	Mr Kent effectively adopted an argument advanced by Mr Eldred Tabachnik QC in R v Lord Chancellor, ex parte Nangle [1991] ICR 743, who founded his argument in that case on paragraph 14 of the Civil Service code and a decision in Ex parte Bruce [1988] ICR 649.  Mr Tabachnik also submitted that the letter of appointment pointed in terms to an appointment rather than a contract.  In relation to the latter argument, the Court of Appeal in Nangle said that “In our judgment the use of the word “appointment” is neutral and certainly does not negative an intention to create legal relations. Many contractual relationships of employer and employee are described as appointments”. 
8.	In Ex parte Bruce, at 660, May LJ said that he did not think that it was shown, particularly in the light of the provisions of the paragraph 14 of the Civil Service code, that prior to about 1985 the Crown intended that Civil Servants should have contracts of employment.
9.	Mr Tabachnik also relied on the attitude of the Crown in previous cases, in respect of which the Court of Appeal observed that it was probably true to say that in the majority it had either been assumed that there was no contract or it was argued that there was none. 
10.	Paragraph 14 of the Civil Service code provided as follows:
“For the most part, the relationship between the civil servant and the Crown remains one regulated under the prerogative and based on personal appointment. As such, a civil servant does not have a contract of employment enforceable in the courts but rather a letter of appointment, and technically the Crown still retains the right to dismiss a civil servant at pleasure. Recently, however, the legal position of civil servants has been radically changed by the growing trend for legislation to apply to the Civil Service either directly, by the provisions of the Acts themselves, or by governmental assurances that the conditions applying to civil servants will not be less favourable than those applying to other employees.”
11.	The Court of Appeal rejected Mr Tabachnik’s submissions.  At page 751, Stuart-Smith LJ, delivering the judgment of the court, said:
“With the exception of paragraph 14 of the code it seems to us plain beyond argument that the parties intended to create legal relations, this is consistent with the Kodeeswaran and Lam Yuk-ming cases. Moreover, the earlier authorities, supported by the opinion of Lord Goddard C.J. in Inland Revenue Commissioners v. Hambrook [1956] 2 Q.B. 641, do not turn on an absence of intention to create legal relations.  In our judgment paragraph 14 has to be read in context.  It is to be found in a section of the code which is dealing with legislation affecting conditions of service of civil servants; it is merely part of the introduction to the legislation referred to.  The purpose of the section is to describe a state of affairs as it is believed to be; not to limit or exclude rights or obligations or to restrict or exclude the enforceability of such rights or obligations.  Paragraphs 11 to 13 merely describe the historical evolution of the Civil Service; paragraphs 14 and 15 introduce the legislation that is thereafter referred to.  The very legislation, to much of which we have earlier referred, shows that there are legal consequences of the relationship.  The documentation lays down with great clarity rights, obligations and entitlements, dealing with such matters as pay, pensions, hours of attendance, holidays, sick leave, discipline and many other similar matters which are the stock in trade of a contract of employment.  We cannot construe paragraph 14 of the code as meaning that all these matters are to be voluntary only and not legally enforceable or even that such was the intention of the Crown.  In our judgment it is merely descriptive of what was believed to be the position. It makes no difference that the terms are described as conditions of service as opposed to terms and conditions of contract.  The relationship of employer and employee, master and servant, which plainly exists here must of its very nature be one that involves an intention to create legal relations, unless such intention is clearly excluded either expressly or by necessary implication, as it is in the religious appointments cases.  In our judgment read in its proper context paragraph 14 does not have this effect. Moreover, it seems to us that there is a fundamental inconsistency in Mr. Tabachnik's argument.  We find it difficult to see how the parties can have intended that their relationship should not be governed by private law, but did intend that they should be governed by public law.  They either intended their relationship to have legal consequences or they did not. 
For these reasons we have come to the conclusion that we should not follow the reasoning of the Divisional Court in R v Civil Service Appeal Board, Ex parte Bruce [1988] ICR 649 . . .”
12.	Although the decision in R v Lord Chancellor, ex parte Nangle was made by reference to the legal position in 1974, I have not been shown any material that indicates the absence of an intention to create legal relations between the Crown and Civil Servants in the 1950s or 1960s, even though some people may have thought that that was the true position.  It seems to me that, objectively viewed, there was an intention to create legal relations during this period.
13.	For these reasons, therefore, I have no hesitation in rejecting Mr Kent’s submissions on this point.  However, in fairness to him, I think that it was not an argument that he was able to embrace with a great deal of enthusiasm.  In my judgment these employees of the Postmaster General were employed under a legally binding contract of employment, and I extend this to those who have been referred to as apprentices (I think that it was accepted that their status would have been the same).
14.	Accordingly this conclusion disposes of any need to treat those who were employees of the Postmaster General in any different way to those who were subsequently employed by the Post Office.
The relevant statutory provisions
15.	The section of the Act which deals with "Transfers of property, rights and liabilities" is section 10, which provides:
"10(1)	Before the appointed day the Post Office shall take steps to separate from the remainder of its undertaking the part thereof concerned with the provision of telecommunication and data processing services (that is to say, the part thereof which is under the management and control of the deputy chairman who has special responsibility for telecommunication and data services).

(2)	Subject to the following provisions of this section, on the appointed day there shall be transferred from the Post Office to, and by virtue of this Act vested in, the Corporation all the property, rights and liabilities which, immediately before that day, were comprised in the part of the Post Office's undertaking mentioned in sub-section (1)".
16.	Sub-sections (3) and (4) then provide that, by agreement between the Post Office and the new corporation, before and after the appointed day, respectively, specific property rights and liabilities are not to be so transferred.  However, this is subject to sub-section 5, which provides:
"(5) 	No agreement under sub-section (3) or (4) shall have effect in relation to rights and liabilities under a contract of employment unless the employee concerned is a party to the agreement." 
17.	Section 10(7) introduces Schedule 2 thus:
"(7)	Schedule 2 shall apply to any transfer under sub-section (2) or (6) [which gives effect to agreements under sub-section (4)] subject, in the case of a transfer under sub-section (6), to any reference in that Schedule to a vesting by virtue of this Act being construed to a reference to a vesting by virtue of the agreement in question; and those sub-sections shall have effect subject to the provisions of that Schedule."
18.	Schedule 2 also applies to sections 4 and 60 of the Act which deal with redistribution of property rights and liabilities amongst wholly owned subsidiaries of the new corporation and the Post Office, respectively.
19.	Schedule 2 is itself headed "Provisions as to transfers of property, rights and liabilities".  Paragraphs 1 and 2 are stated expressly not to apply “to any such rights or liabilities under a contract of employment".  Sub-paragraphs (2) to (4) of paragraph 1 deal with methods for the division or apportionment of property rights and liabilities that were shared.  Paragraph 2 provides for the making of written agreements in relation to such arrangements, and sub-paragraph (3) of paragraph 2 provides for intervention by the Secretary of State in cases where agreement is unlikely to be reached.  The material parts of paragraphs 1- 3 are as follows:
“1(1) 	The provisions of this paragraph and paragraph 2 shall have effect where a transfer to which this Schedule applies is a transfer of all property, rights and liabilities comprised in a specified part of the transferor's undertaking, but shall not apply to any such rights or liabilities under a contract of employment. 
2(1) 	It shall be the duty of the transferor and the transferee, whether before or after the transfer date, so far as practicable to arrive at such written agreements and to execute such other instruments as are necessary or expedient to identify or define the property, rights and liabilities transferred to the transferee or retained by the transferor and as will—
(a) 	afford to the transferor and the transferee as against one another such rights and safeguards as they may require for the proper discharge of their respective functions;
			. . .
3(1)	The provisions of this paragraph shall have effect where any rights and liabilities transferred under a transfer to which this Schedule applies are rights and liabilities under a contract of employment and the transfer is of all property, rights and liabilities comprised in a specified part of the transferor's undertaking.
    (2)	The rights and liabilities under the contract of employment shall be transferred only if immediately before the transfer date the employee concerned was employed in the part of the transferor's undertaking which is transferred.”

The distinction between causes of action in tort and contract
20.	The conclusion reached in paragraph 14 above also disposes to a large extent of the issue as to whether any distinction is or needs to be drawn between causes of action in tort and causes of action in contract.  I can therefore deal with this issue fairly briefly.  
21.	It was submitted on behalf of BT plc that the liability for breach of the implied contractual terms to take care for the safety of employees and to comply with statutory duties falls within the words “rights and liabilities under the contract of employment”.  I agree: this is self evidently so.  
22.	It is clear also that the words of section 10(2) of the Act contain no limitation that would exclude the transfer of a liability in tort, rather than in contract, or vice versa.
23.	There is one possible aspect of the distinction between the two causes of action that may be relevant and that is in relation to Schedule 2.  In its Opening Summary BT plc anticipated a possible argument that a claim in tort was not a claim in respect of a liability under a contract of employment and therefore was not within the scope of Schedule 2.  BT plc submitted that the statute read as a whole together with the other associated legislation, such as the EC Directive 187/1977/EEC and the UK legislation that subsequently implemented its provisions, makes it clear that it was within the definition.
24.	In this context, I was referred to the decision of the Court of Appeal in Bernadone v Pall Mall Services Group [2001] ICR 197.  The case involved two claims by claimants who had been injured at work, in each case before their respective employer’s business had been transferred to a different company.  Both brought claims in negligence and so the question arose as to whether the liability of the original employer in tort had been transferred to the new employer.  I note that the judgments the case were given on 16 May 2000, a few months before the substantive provisions of the Human Rights Act 1998 were brought into force.
25.	The Court noted that the United Kingdom implemented the Directive pursuant to s 2(2) of the European Communities Act 1972 by bringing the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”) into force. Regulations 5(1) to (4) were the relevant parts of TUPE.  The reasoning of the Court was as follows.  TUPE had to be given a purposive construction having regard to, and so far as possible, consistent with, the Directive.  Article 3(1) of the Directive meant that the transfer of an undertaking entailed the automatic transfer to the transferee of the employer's obligations which arose from the contract of employment, subject to a Member State’s right to provide for joint liability between the transferor and transferee.  The Directive's purpose was to safeguard the employee's rights, which arose from his contract of employment, upon a transfer of an undertaking.  The language of TUPE did not mirror the Directive's, although TUPE could be construed consistently with the Directive.  TUPE appeared to include non-contractual rights (see regulations 5(2)(a) and (b) of TUPE).  If tortious liabilities did not also transfer they would remain with the transferor whilst all contractual liabilities passed to the transferee, a result which the Court regarded as surprising.  Accordingly, the Court held that tortious liabilities did transfer with the contractual obligations.
26.	Peter Gibson LJ said, at paragraph 35 of the judgment:
“When one goes to TUPE, it is noticeable that the language does not mirror that of the Directive, although it is of course necessary to construe TUPE consistently with the Directive if possible. Again one notes the width of the language used in para. (a) of Regulation 5(2):  “all the transferor's rights, powers, duties and liabilities under or in connection with" the contract of employment. The rights etc. are not limited to those under the contract but include those "in connection with" the contract. That prepositional phrase is far wider and it does not suggest that the rights etc. need be contractual. That is supported by para. (b) of Regulation 5(2). It is not just what is done by the transferor in respect of the contract that is deemed to have been done by the transferee but also anything done by the transferor in respect of the employee. That does not suggest that it is limited to what will result in contractual rights and liabilities.”
At paragraph 37 he then said this:
“Does such a tortious liability arise from the contract of employment (in the words of the Directive) or under or in connection with that contract (in the words of Regulation 5 (2)(a))?  I would not say that it arose under the contract, but I have no difficulty in saying that it arose from or in connection with the contract. In this context the observations of Lord Wright in Wilson & Clyde Coal Co. Ltd v English [1938] A.C.57 are helpful.  At p. 78 he referred to "those fundamental obligations of a contract of employment .... for the performance of which employers are absolutely responsible." "The employer's obligation" was said at p. 81 to include the provision of a proper system of working. The duty of care arises out of the relationship of employer and employee, and in my judgment any liability for its breach arises from and is in connection with the contract of employment.”
27.	It is clear that Peter Gibson LJ’s observation that the tortious liability would not arise under the contract was, strictly speaking, obiter, but nevertheless it is an observation with which - other things being equal - I would hesitate to disagree.  However, amongst other things, as I have already noted, the Human Rights Act 1998 was not in force when the judgments in Bernadone were given.  Whilst this case does not involve Convention rights, it is probably correct to say that the courts today – nearly 10 years later - are, if anything, more ready to construe legislation in a manner that accords with European law than might have been the case before the passing of the Human Rights Act 1998.
28.	For reasons which will become clear later on in this judgment I do not consider that I have to decide this point, but if it was necessary to do so I would accept BT plc’s submission by holding that, to borrow the words of Lord Wright (in Wilson & Clyde Coal Co. Ltd v English [1938] AC 57), the fundamental obligations of a contract of employment, such as the duty to take reasonable care for the safety of an employee, constitute rights under a contract of employment within the meaning of Schedule 2 and not merely rights in connection with it.  This is because the duties would not arise in the absence of the employment and the Schedule should be given a purposive construction.  Accordingly, if it was necessary to do so, I would hold that since the liability of the Post Office to the employees whose claims are the subject of this case is (on the assumed facts) a liability for breach of one of the fundamental obligations of the contract, the liability is a liability under the contract of employment and therefore one that is capable of falling within Schedule 2 to the Act.
The submissions of the parties on the main issue
29.	The primary argument of BT plc, who was represented by Mr Andrew Hogarth QC, was simple, namely that liabilities to former employees of the Post Office remained with the Post Office because they were “liabilities under the contract of employment” and paragraph 3(2) of Schedule 2 states that they “shall be transferred only if immediately before the transfer date the employee concerned was employed in the part of the transferor's undertaking which is transferred".  In other words, he submits, there can be no transfer of rights and liabilities under a contract of employment in respect of anyone who had ceased to work for the Post Office prior to 30 September 1981.
30.	Mr Hogarth’s alternative argument was that the words “were comprised in the part of the Post Office's undertaking mentioned in sub-section (1)" are not apt to extend to contingent liabilities.  This was on the basis, as I understood the point, that a contract that had ceased to exist could not be said to be “comprised in part of the Post Office’s undertaking”.  I will revert to this argument later in this judgment.
31.	Mr Kent submitted that BT plc’s argument takes paragraph 3(2) of Schedule 2 to the Act out of context. When read in light of the object and purpose of the Act as a whole and the structure of its provisions, the scope of the paragraph could be seen to be much more limited: in effect being concerned only with those who were, immediately before the appointed day, employed by the Post Office and who were intended to be employed, immediately after that date, by either the Post Office or BT depending on which side of the combined undertaking they had been working in. The effect was a transfer of the employment contract itself (with preservation of continuity of employment and other accrued employment rights) and it had nothing to do with liabilities in tort, actual or contingent, or for breach of contract, relating to prior events.
Discussion and conclusions
32.	In my judgment, paragraphs 1 to 3 of Schedule 2 have to be read together.  When this is done one sees that they are a series of provisions showing how interests in property and rights and liabilities are to be attributed either to BT or to the Post Office in situations where the position may not be obvious.  For example, on 30 September 1981 a building may have been in the joint occupation by the two parts of the Post Office: the ground floor might have been a sorting office and the first floor a telephone exchange.  The Act had to provide a mechanism or a default position for cases where both undertakings of the Post Office had an interest in relation to property, and that mechanism is provided by paragraphs 1 and 2 of Schedule 2.
33.	Paragraph 3 deals with the position of employees.  Whilst it would have been possible in theory for each and every one of the 250,000 telecommunications employees of the Post Office to be sent a letter telling him or her where he or she was to go, it was plainly sensible for the Act to provide for a default position.  On this basis the default position was that employees should be transferred into the organisation in whose business they had been working on the day before the transfer.
34.	This seems to me to be a natural and sensible reading of paragraphs 1 to 3 of Schedule 2.  However, that does not necessarily mean that it is the correct reading.
35.	Mr Hogarth submits that because section 10(2) of the act is expressly stated to be subject to Schedule 2, the provisions of the latter must prevail over the former.  Since the wording of paragraph 3 of Schedule 2 is clear and unambiguous, it must have the effect that in respect of employees the only liabilities transferred are those in respect of employees who were in the employment of the Post Office on 30 September 1981.
36.	The difficulty with this argument is that it has the consequence that the words "all the . . . liabilities" in section 10(2) of the Act do not mean all the liabilities, but mean all the liabilities except for liabilities in respect of employees of the Post Office whose employment had ceased before 30 September 1981.  One might expect that such a major limitation, if that was what was intended, would be expressed in clearer words and might be found within the main body of the Act and not found in a sub-paragraph in a schedule to it.  However, that said, I accept of course that a schedule is just as much a part of a statute as its main body.
37.	In my view, a further difficulty facing Mr Hogarth’s argument is that the final words of paragraph 3(1) of Schedule 2 show that it is dealing with the situation where there is a transfer of all property, rights and liabilities comprised in a specified part of the transferor's undertaking and that there are associated contracts of employment.  This suggests that the paragraph is directed to contracts of employment subsisting at the time of the transfer and that it is not referring to those cases where the employment has ceased. 
38.	A point emerged during the course of the argument that, in my view, throws strong light on the meaning of section 10.  Section 33 of the Act is concerned with pensions.  In the ordinary course of events an entitlement to a pension, if there is one, is a right that arises under a contract of employment.  However, the responsibility for making the pension payments will usually rest with trustees who are a separate and distinct entity from the employer.  Whether or not the employee will have a right of action to enforce his pension entitlement directly against the trustees will depend on the circumstances.  However, usually his primary right would be against his employer who, in turn, will then have a right against the trustees of the pension fund to compel specific performance of the obligation to pay the pension to the employee.
39.	Such documents as I have seen in this case suggest that similar arrangements existed between employees of the Post Office, the Post Office and the trustees of the Post Office’s pension fund.  For example, the Post Office Staff Superannuation Scheme booklet, at page 47 of the Core Bundle, explains the entitlement of members of the Scheme to a pension and how that pension is to be calculated by reference to years of reckonable service.
40.	Section 33(2) of the Act provides as follows:
“(2) 	This section applies to-
(a) 	any employee of the Corporation or any of its subsidiaries;
(b)	any member of the Corporation who immediately before he became such a member was participating in a Post Office scheme;
(c) 	any person who ceases or ceased to be employed by the Post Office before the appointed day and as respects whom any liability of the Post Office under a Post Office scheme or section 43 or 46 of the 1969 Act is transferred to the Corporation by this Act ; and
(d) 	any person who ceased to be a civil servant before 1st October 1969 and as respects whom any liability of the Post Office under section 44 of that Act is so transferred.”
										(My emphasis)
A “Post Office scheme” was defined to mean a pension scheme established by the Post Office.  To my mind sub-section 33(2)(c) shows clearly that the draftsman of the Act contemplated that the pension rights of former employees of the Post Office (ie. those whose employment ceased prior to 30 September 1981) who worked in the telecommunications part of the Post Office’s undertaking would be transferred to BT under the provisions of the Act.
41.	I am unable to find, and counsel could not identify, any provision of the Act that could have provided for the transfer of these pension rights apart from section 10(2).  If this is correct, as I consider it must be, then this is a powerful indication that section 10(2) does not have the limited effect for which Mr Hogarth contends.
42.	In my judgment section 10(2) of the Act, if read according to both its natural meaning and with a purposive approach, refers to all liabilities without limitation and does not exclude liabilities in respect of former employees of the Post Office whose employment had ceased prior to 30 September 1981.  Paragraph 3 of Schedule 2 to the Act is, in my view, no more than part of the mechanism for defining the circumstances in which existing employees will be transferred to BT in the absence of any specific agreement to the contrary.  It does not "trump" the natural meaning of the words in section 10(2).
43.	I now return to Mr Hogarth’s alternative argument that a contract that had ceased to exist could not be said to be “comprised in part of the Post Office’s undertaking”.    In my view, this argument fails for the same reason, namely that section 33(2) contemplates that rights that existed under a contract that had come to an end (if that is the right description for a situation in which one side is still under a duty to perform a primary contractual obligation, namely to pay a pension) can still be transferred by the Act.
44.	But even if section 33 did not exist, I would reject this argument on the ground that the language is perfectly apt to include liabilities arising out of contracts that have come to an end.  During the course of argument Mr Hogarth accepted, realistically and inevitably it seemed to me, that a liability to a member of the public who had tripped over a defective telecommunications manhole cover many months before the transfer would be transferred to BT by section 10(2).  From this it must follow that such a liability is a liability “comprised in part of the Post Office’s undertaking”.    So if a liability is capable of being transferred which does not arise out of a contract at all, I cannot see why a liability arising under a contract, whether subsisting or not, is not also a liability “comprised in part of the Post Office’s undertaking”.   
45.	For these reasons, on the assumption that each of the employees who are the subject of the test cases was exposed to asbestos whilst working in the telecommunications side of the Post Office’s undertaking, I conclude that the liabilities of the Post Office to those employees were transferred to BT by section 10(2) of the Act.  BT plc’s application for the declaration sought therefore fails.
46.	I will if necessary hear counsel as to the form of any further relief and on any questions of costs.