Haine v Day

This Court of Appeal held that protective awards made by an Employment Tribunal under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 are capable of being provable as contingent liabilities in a company liquidation under rule 13.12(1)(b) of the Insolvency Rules 1986. The court construed rule 13.12(1)(b) purposively and treated a protective award as a liability which the company "may become subject after" liquidation by reason of the pre‑liquidation obligation to consult in section 188. The court also held that, in cases of total failure to consult, the Employment Tribunal’s apparent discretion under section 189(2) is in practice constrained by principle (as explained in GMB v Susie Radin Ltd) so that an award for the maximum period will ordinarily follow; this supported treatment of the award as a contingent liability. Glenister v Rowe and R (Steele) v Birmingham City Council were distinguished and not applied to defeat provability in liquidation. The Directive 98/59/EC (Article 6) and the statutory indemnity/subrogation role of the Secretary of State under the Employment Rights Act 1996 informed the purposive construction.

The liquidator of Compound Sections Ltd sought directions under section 112 of the Insolvency Act 1986 about whether Employment Tribunal protective awards (made under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 following failures to consult under section 188) were provable in the company’s liquidation. The awards had been made on 31 August 2006 after the company ceased consulting and after liquidation steps began; the Secretary of State for Business Enterprise and Regulatory Reform was a party because of the indemnity/subrogation regime under the Employment Rights Act 1996 (section 182).

The key legal issue was whether such protective awards are "any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date" within rule 13.12(1)(b) of the Insolvency Rules 1986, or whether the awards only arise by the later exercise of a judicial discretion so as to fall outside provability (as suggested by Glenister and Steele). The court also considered the relevance of Council Directive 98/59/EC (Article 6) requiring effective judicial or administrative enforcement of collective redundancy obligations.

The Court of Appeal allowed the appeal. It reasoned (i) linguistically and purposively that a protective award is a contingent liability within rule 13.12(1)(b) because it flows from a pre‑liquidation statutory obligation to consult; and (ii) that in cases of a complete failure to consult the Employment Tribunal’s discretion will, as a matter of principle and practice (see GMB v Susie Radin Ltd), normally be exercised so as to make an award for the maximum period, so the liability is not a mere speculative risk. The court therefore distinguished Glenister and Steele and concluded the awards were provable in the liquidation. The judgment also noted the Directive and the policy consequence that, absent provability, the Government indemnifier would be unduly exposed and the sanction would not be effective, proportionate and dissuasive.

Nature of the claim/application: directions under section 112 Insolvency Act 1986 as to provability of protective awards in liquidation.

Issues framed by the court: whether protective awards are provable debts in a liquidation under Insolvency Rules 12.3 and 13.12; whether the Employment Tribunal’s discretion under section 189(2) prevents provability; whether EU Directive 98/59/EC and domestic statutory scheme require a purposive construction.

Court’s reasoning in brief: a protective award stems from the employer’s pre‑liquidation obligation to consult and so falls within rule 13.12(1)(b) as a contingent liability; where consultation failure is complete the Tribunal’s discretion will normally produce an award (Susie Radin), so the contingency is real rather than illusory; Glenister and Steele were distinguished on those bases.

Appeal allowed. The Court of Appeal held that protective awards under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 are contingent liabilities provable in a company liquidation under rule 13.12(1)(b) of the Insolvency Rules 1986, because they arise by reason of the employer’s pre‑liquidation obligation to consult and, in cases of total failure to consult, the Tribunal’s discretion will ordinarily produce an award; Glenister and Steele were distinguished.

Appeal from Sir Donald Rattee sitting as a judge of the Chancery Division of the High Court of Justice (judgment: Sir Donald Rattee, [2007] EWHC 2691 (Ch), order made 15 October 2007). The case was remitted to the Court of Appeal for determination and judgment was delivered 11 June 2008.