In Martin v Lancashire County Council  and Bernadone v (1) Pall Mall Services Group (2) Haringey Healthcare NHS Trust and (3) Independent Insurance Ltd  the Court of Appeal was required to decide two appeals, both of which concerned the same primary issues.
On a transfer of an undertaking which is subject to TUPE, first, whether a liability in tort of the transferor to an employee, accrued before the transfer, is transferred to the transferee by TUPE and, secondly, whether the transferor’s rights under any employers’ liability insurance effected by the transferor are transferred by TUPE.
Both Claimants had suffered personal injuries in their respective workplaces. Subsequently, their respective employers had transferred part or all of their business. In neither appeal was there any dispute that the provisions of TUPE applied to the transfers, nor was there any dispute that TUPE should be given a purposive construction.
Court of Appeal decision
Lord Justice Gibson, who gave the primary judgment for the appeals, considered various authorities which addressed the question of what is transferred by the transferor to the transferee by TUPE.
Liability in tort
Since the authorities were inconsistent, Gibson LJ turned to the EU Acquired Rights Directive (77/187/ EEC) which gave rise to TUPE. The purpose of this Directive was to safeguard the rights of employees on a change of employer. He considered that it would be surprising if the transferor’s obligations to its employees under the Directive were limited to contractual claims and excluded claims in tort; the only express limitation to such obligations was that they had to arise ‘from a contract of employment or from an employment relationship’.
Under TUPE Regulation 5(2), the language used to refer to the rights and obligations which were transferred was similarly broad, stating that they must be ‘in connection with’ the contract. Such wording did not limit the obligations to contractual ones.
There were many circumstances in which an employee would be entitled to bring an action either in contract or in tort, or both. It would be strange if TUPE worked so as to transfer the contractual claim to the transferee, but left the tortious claim enforceable against the transferor. The Claimants in the two appeals had sued their previous employers in negligence; however they could also have sued in contract for breach of an implied term to provide a safe system or place of work. Therefore, liability in negligence was held to have transferred to the respective transferees in both cases.
Mrs Bernadone, the Claimant in the second case, had also brought a claim under section 2 of the Occupiers’ Liability Act 1957 for her injury. The Court of Appeal found a sufficient connection with the contract of employment, such that liability under the 1957 Act also transferred.
Rights under an employer’s liability insurance policy
Employers not exempted by section 3 of the Employers’ Liability (Compulsory Insurance) Act 1969 (broadly, the public sector) have a statutory duty under section 3 of that Act to insure against liability for ‘injury sustained by his employees and arising out of and in the course of their employment…in that business’. Most employers have to insure against personal injury liability under that Act. Although the 1969 Act does not give rise to a right of action for an employee against his employer, it does serve to protect the employee. The 1969 Act ensures that the employer is able to recover from its insurers the amount of liability to the employee, whether in tort or contract, arising out of the employment.
Additionally, because of the Third Parties (Rights Against Insurers) Act 1930, the employee could also sue the employers’ liability insurer directly if the employer became insolvent.
Unless the employee had the same potential rights under the 1969 Act and 1930 Act after the transfer as he had before, Lord Justice Gibson was of the opinion that the transfer would result in a serious disadvantage to him, which would be contrary to the purpose of TUPE.
The Court of Appeal held that the transferor employer has a right to recover from the insurer an indemnity in respect of the transferor’s liability arising from or in connection with the contract of employment. As such, the right arises from and is in connection with the contract of employment. It should therefore be transferred under TUPE. This conclusion was consistent with the purposes of TUPE and the Directive. It was also just, since the transferor’s insurers had received a premium in respect of the transferor employer’s liability, and there was no reason why TUPE should work so as to allow insurers to keep the premium but avoid liability.
If the transferor was one of the bodies that was exempt from the Employers’ Liability (Compulsory Insurance) Act 1969, the situation is governed by Regulation 17(2) of TUPE which provides for the transferee and transferor to be jointly and severally liable, and this is likely to extend to any excess, although this is not considered in the TUPE Regulations or in the Martin case.
Of course, if the parties have made provision for this situation in the Sale Agreement then the situation could be altered by any applicable TUPE warranties and indemnities.
Court of Appeal reviews non-reliance clauses
In Lloyd and Others v Browning and Another  the Court of Appeal was asked to decide whether it was fair and reasonable to include a non-reliance clause in a contract for the sale of property
The Defendants, Mr and Mrs Browning, were farmers. In early 2005 they decided to place certain outbuildings and land on the market. They realised that the prospects of a successful sale would be enhanced if planning permission to convert the farm buildings could be obtained. Plans were professionally prepared which detailed the conversion of an ‘L’ shaped barn into a ‘U’ shaped dwelling by the building of a new wing.
However, adding the new wing was contrary to the District Council’s local planning policies. Revised plans, which omitted the new wing, were subsequently accepted by the District Council and planning permission was granted in January 2006. The planning permission document made no reference to any plans. In early 2008, the property was placed on the market with the benefit of the planning permission. The estate agents were not aware of the change in the plans and the sale particulars made no mention of the amended plans.
The Claimants were all members of the same family. In early 2009 they were looking for a property where they could all live together in two separate residential units. Their understanding from the sale particulars was that the planning permission permitted the construction of the new wing.
It was the Claimants’ case that when they met the Defendants, they were shown the un-amended plans which showed the new wing. They claimed that the Defendants represented that the planning permission would allow the new wing to be built and at subsequent meetings made no attempt to correct this misunderstanding.
The Claimants’ solicitors were not instructed to obtain the detailed planning permission or the plans submitted with it, and as such they made no pre-contract enquiries about this subject. There was not a term in the contract which dealt with the precise terms of the planning permission or the possibility of the new wing being built.
The District Council had, in error, failed to make the amended plans available for public inspection and consequently the planning consultants, on attending the District Council’s offices, did not see the amended plans and informed the Claimants that, strangely, there was no mention of the new wing in the planning committee report. However, because it was mentioned in the original agent’s letter and obviously shown on the [unamended] plans, there was no cause for concern. Contracts were exchanged in August 2009 and two weeks after completion the Claimants became aware that the planning permission did not allow for construction of the new wing. The Claimants subsequently brought a claim for, inter alia, misrepresentation.
The judge was to find that the diminution in value of the property without the extension as compared to the value of the property with the extension was £55,000.
Condition 8 of the contract, which was incorporated as a special condition, was a non-reliance clause, which purported to exclude the possibility of there being a pre-contract misrepresentation. The clause provided as follows:
The Buyer hereby admits that he has inspected the property and he enters into this contract solely as a result of such inspection and upon the basis of the terms of this contract, and that in making this contract no statement made by the seller or his agent has induced him to enter except written statements, if any, made by the seller’s conveyancers in replies to enquiries raised by the buyer’s conveyancers or in correspondence between the parties’ conveyancers.
At first instance the judge found that the Defendants had made a misrepresentation which induced the Claimants to enter into the contract.
However, the judge found that the claim failed by reason of the non- reliance clause in condition 8. He said that the transaction was conducted by parties of equal bargaining power with solicitors acting for them.
Court of Appeal decision
The Claimants appealed on the grounds that the judge had not taken into account the particular factual circumstances of the dispute. The Claimants claimed that the clause fell foul of section 11 of the Unfair Contract Terms Act 1977.
Lord Justice Davis agreed that the ultimate question was whether or not it was fair and reasonable for the non-reliance clause to be contained in this particular contract. Non-reliance clauses are designed to achieve certainty and forestall disputes as to whether things were or were not orally said prior to exchange of contracts and to forestall trials on contested issues of fact. This is in itself a reasonable position for each party to be presumed to wish to take and a reasonable aim for them to wish to achieve. The presence of a non- reliance clause in the contract was not in itself objectionable .
Lord Justice Davis endorsed the decision of Lewison J in FoodCo UK LLP v Henry Boot Developments Limited  which considered a non-reliance clause in generally similar terms. Accordingly, he held that the clause in question was a reasonable and fair one for the following reasons:
- both sides had instructed legal advisers, whilst the Claimants had also instructed architects and planning consultants. That was, as the judge at first instance duly found, plainly material as to the reasonableness of including this particular condition into the contract;
- the contract was for the sale of land, and such contracts are required to have all the agreed terms recorded in writing and signed by each party. Such contracts have a status of formality about them;
- this condition was not a “take it or leave it” condition of the kind sometimes imposed in small print on consumers, acting without legal advice, in consumer transactions. It was a special condition agreed by the parties’ lawyers in circumstances where the parties had equal and corresponding negotiating positions. Moreover, such a condition was in common use;
- a particularly striking feature of the present case was that the condition, expressly by its terms, permitted the Claimants to rely on written statements made by the Defendants’ solicitors in replying to pre-contract enquiries or otherwise in correspondence. Thus, if the Claimants wished to rely on what had been said to them orally the means for giving legal effect to that were readily available: that is, by an appropriate written pre-contract enquiry or solicitor’s letter. Such a request would reveal just what the vendors were prepared formally to commit themselves to.
The potential uncertainties revealed from the investigations and enquiries (such as they were) of the District Council reinforced the desirability of the Claimants either making more detailed enquiries of the District Council or instructing their solicitors of the points raised by the planning consultants: so that written confirmation could be sought from the vendors’ solicitors as to the planning permission before the Claimants committed themselves to any contract.
Lady Justice Arden said, in addition, that another factor was the fact that the pressure to exchange contracts came from the Claimants as purchasers and not from the vendors. They therefore took a deliberate decision to exchange contracts in the knowledge that the information that they had on the planning position was incomplete. There was potential unfairness to the vendors in these circumstances if the purchasers were able to cause the vendors to be under a liability for the statements that were made orally by the vendors personally in the course of negotiations.
The appeal was dismissed.
This case highlights the importance for individuals and businesses of conducting written pre-contract enquiries and due diligence in the lead up to a purchase. It serves as a reminder that any understanding or impression which arises from pre- contractual oral statements may not be relied upon if there is a non-reliance clause which is found to be fair and reasonable.