Grady v HM Prison Service

The Court of Appeal considered whether a pending claim for unfair dismissal vests in the trustee in bankruptcy on the employee's bankruptcy. The court reviewed the statutory framework under the Employment Rights Act 1996 (notably ss.94, 98, 111, 112, 116, 117 and ss.118 to 127A) and the insolvency provisions of the Insolvency Act 1986 (notably s.306, s.283 and s.436).

Applying established common-law distinctions between causes of action that are transmissible assets and those personal to the claimant, the court held that an unfair dismissal claim is essentially personal in nature because its principal remedies (reinstatement and re-engagement) aim to restore a contractual relationship which only the claimant can perform. Accordingly, the claim does not vest in the trustee in bankruptcy and the bankrupt claimant retains standing to pursue it. The Court of Appeal remitted the matter to the Employment Appeal Tribunal for determination on the merits.

Background and facts:

• The appellant was an administration officer in the prison service for nearly fifteen years. Following termination in November 2000 she brought proceedings in the employment tribunal alleging unfair dismissal, wrongful dismissal and disability discrimination.
• The employment tribunal struck out her claims on 12 November 2001 for repeated non-compliance with procedural directions. She appealed to the Employment Appeal Tribunal (EAT) on 21 November 2001. The appellant was adjudged bankrupt on 31 January 2002.
• The respondent argued before the EAT that on bankruptcy all rights of action vested in the trustee in bankruptcy and therefore the appellant lacked standing; the EAT dismissed the appeal for want of jurisdiction but granted permission to appeal to the Court of Appeal because the point was not straightforward.

Nature of the application and issues:

1. (i) The relief sought: the appellant sought remedies for unfair dismissal (including reinstatement, re-engagement or compensation), wrongful dismissal and disability discrimination.
2. (ii) Issues framed by the court: whether an unfair dismissal claim is a "thing in action" that vests in the trustee in bankruptcy, or whether it is personal to the claimant and therefore does not vest; whether the pending appeal to the EAT was itself transmissible; and whether, if the appeal was competent, the Court should decide the substantive merits.
3. (iii) Procedural posture: appeal to the Court of Appeal from an EAT decision dismissing for want of jurisdiction and granting permission to appeal.

Court’s reasoning and conclusion:

The court set out the statutory scheme for unfair dismissal remedies under the Employment Rights Act 1996 and the insolvency rules in the Insolvency Act 1986. It reviewed authorities distinguishing transmissible property-type causes of action from personal causes of action (including Heath v Tang, Beckham v Drake and Ord v Upton). The court concluded that unfair dismissal is essentially a personal statutory right because its primary remedies are restorative (reinstatement or re-engagement) and seek to restore a job which only the claimant can perform; therefore such claims do not vest in a trustee in bankruptcy even though any eventual monetary award may form part of the bankrupt's estate. The Court of Appeal allowed the appeal on standing and remitted the substantive matter to the EAT, declining to determine the merits itself.

The court noted the practical rarity of orders for reinstatement or re-engagement but did not accept that that rarity meant the unfair dismissal claim should be treated as property passing to the trustee. The court declined to substitute its view for the EAT on substantive employment law and procedure and therefore remitted the case.

Appeal allowed. The Court of Appeal held that a claim for unfair dismissal is personal to the employee and does not vest in the trustee in bankruptcy; therefore the bankrupt appellant retained standing to pursue her unfair dismissal claim. The court remitted the substantive issues to the Employment Appeal Tribunal for determination on the merits.

Originating employment tribunal claim (Leeds) struck out on 12 November 2001. Appeal to the Employment Appeal Tribunal dismissed for want of jurisdiction after the appellant was adjudged bankrupt (31 January 2002); EAT granted permission to appeal to the Court of Appeal. Appeal allowed by the Court of Appeal and remitted to the EAT for determination on the merits.