Secretary of State for the Department for Environment, Food and Rural Affairs v Public and Commercial Services Union

Where a contractual term purports to benefit an expressly identified third party, sections 1(1)(b) and 1(3) of the Contracts (Rights of Third Parties) Act 1999 create a strong presumption that the third party may enforce it. The presumption is rebutted under section 1(2) only if the contract, objectively construed, demonstrates a positive common intention that the term should not be enforceable by that party.

Where the contract contains no express exclusion, rebuttal ordinarily requires an implied term satisfying the demanding test for implication in fact. A court cannot replace that test with a wide-ranging inquiry into surrounding circumstances. A term’s origin in an unenforceable collective agreement does not itself prevent its enforcement by a union after incorporation into an individual employment contract.

Government departments incorporated check-off terms into employees’ contracts. Those terms required the departments, when authorised, to deduct union subscriptions from salaries and pay them to the Public and Commercial Services Union. The departments later withdrew the arrangements in breach of the employment contracts. The Union claimed damages as a third-party beneficiary under the Contracts (Rights of Third Parties) Act 1999.

The Union and the employees succeeded in three High Court actions. On the departments’ consolidated appeals, the Court of Appeal in [2023] EWCA Civ 551 upheld the employees’ claims but, by a majority, dismissed the Union’s claims. It considered the terms’ origin in collective agreements presumed unenforceable under section 179 of the Trade Union and Labour Relations (Consolidation) Act 1992 decisive.

The issue before the Supreme Court was whether, on a proper construction of the employment contracts, section 1(2) of the 1999 Act displaced the statutory presumption that the Union could enforce the check-off terms.

1. The appeal was allowed unanimously. Lord Sales and Lady Rose delivered the joint judgment, with which Lord Reed and Lady Simler agreed. Lord Burrows reached the same conclusion in a concurring judgment. The Union was entitled to enforce the check-off terms under the Contracts (Rights of Third Parties) Act 1999.

2. Sections 1(1)(b) and 1(3) create a strong rebuttable presumption of third-party enforceability where a contractual term purports to confer a benefit on an expressly identified third party. The third party need not prove a positive common intention to grant enforcement rights. That rejected dual-intention approach differs from the scheme ultimately enacted.

3. Section 1(2) displaces the presumption only where, on an objective construction of the contract, the parties had a positive common intention that the term should not be enforceable by the third party. Where the contract contains no express exclusion, that conclusion requires an implied term. The usual tests of obviousness or business efficacy apply and are demanding. Ordinary principles for construing ambiguous express words do not authorise a free-standing or wide-ranging inquiry into surrounding circumstances to supplement the contract.

4. The collective origin of the check-off term did not establish the required contrary intention. Section 179 of the Trade Union and Labour Relations (Consolidation) Act 1992 governs enforceability of the collective agreement between employer and union. It does not carry that unenforceability into a distinct, legally binding employment contract between employer and employee. Nor does it embody a policy prohibiting union enforcement rights.

5. No term excluding the Union’s rights could be implied. An objective bystander would not necessarily have regarded exclusion as obvious. The contractual and industrial-relations background instead provided substantial support for enforceability: check-off directly benefited the Union, employees relied on collective representation, and union enforcement was an efficient means of protecting the employees’ contractual interests.

6. The availability of payroll deductions for other organisations did not rebut the presumption concerning the Union. Each identified beneficiary must be considered in its own circumstances. The special representative role of a trade union also distinguished it from savings schemes, social clubs and charitable funds.

7. The Court invited submissions on the order required for the Union’s damages claims to proceed.

1. United Kingdom Supreme Court: The Union’s consolidated appeals were allowed unanimously. The Court reversed the dismissal of its third-party claims and invited submissions on the order required for the damages proceedings to continue: [2024] UKSC 41.
2. Court of Appeal: The departments’ appeals concerning the employees were dismissed unanimously. By a majority, their appeals concerning the Union were allowed and the Union’s claims under the Contracts (Rights of Third Parties) Act 1999 were dismissed: [2023] EWCA Civ 551; [2023] ICR 914; [2023] IRLR 679.
3. High Court: The employees and the Union succeeded in three separate actions: Cox, [2022] EWHC 680 (QB); Crane, [2022] EWHC 1626 (QB); and Smith, [2022] EWHC 3188 (KB). The courts held that the check-off terms were binding, had been breached and were enforceable by the Union under the 1999 Act.