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Cite as: [2003] UKEAT 0193_03_2111

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BAILII case number: [2003] UKEAT 0193_03_2111
Appeal No. UKEAT/0193/03

             At the Tribunal
             On 21 November 2003







Transcript of Proceedings



© Copyright 2003



    For the Appellant MR N DE SILVA
    (of Counsel)
    Instructed by:
    PJH Law
    Orion House
    14 Barn Hill
    Lincolnshire PE9 2AE
    For Respondents
    Messrs Cooke, Harte, Holley
    Kirkman, Popplewell and Woods

    For the Respondent
    Mr Walker

    (of Counsel)
    Instructed by:
    Messrs James H Tonner Johns & Co
    48 Walter Road
    Swansea SA1 5PW

    (of Counsel)
    Instructed by:
    Messrs Thompsons
    Congress House
    Great Russell Street
    London WC1B 3LW



  1. This appeal is by Siemens Communications Limited ("Siemens"), which appears by Mr De Silva. It is against a decision of an Employment Tribunal sitting at Carmarthen on 28 August 2002 and chaired by Mr R Jones. The Tribunal sent summary reasons for its decision to the parties on 17 September 2002 and followed them up with extended reasons on 1 November 2002.
  2. The sole issue before the Tribunal was as to the correct construction of a provision in a Siemens personnel policy manual issued in October 1999 and relating to its vehicle allowance scheme. There were seven applicants before the Tribunal, all former employees of Siemens who had been made redundant in December 2001. Their contention before the Tribunal was that the correct interpretation of the relevant provision was that, although their employment had ceased, Siemens was contractually obliged to continue to pay each of them a vehicle allowance for the still unexpired period of an overall term of 48 months.
  3. The Tribunal upheld that contention and found that Siemens was in breach of contract. In default of agreement on the amount of compensation it adjourned that question to a remedy hearing. The seven applicants were Mr Cooke, Mr Harte, Mr Holley, Mr Kirkman, Mr Popplewell, Mr Woods and Mr Walker. The first six were represented before the Tribunal by Mr Cooksey, who also represents them before us. Mr Walker was represented before the Tribunal by Mr Sloan, a union representative, but before us he has been represented by Mr Segal.
  4. The documents

  5. Before coming to the Tribunal's decision, we must set out the main provisions of the relevant documentation. We refer first, by way of example, to Mr Cooke's statement of terms and conditions of employment. They are dated 17 November 1998. He was employed as a Permanent Intelligent Front End Engineer with effect from 1 December 1998. The statement opened with the comment that:
  6. "Reference is made to several policies which are held by the Personnel Department and your Line Manager and are available for perusal on request"

  7. Clause 2 provided that Mr Cooke's salary was £25,416 per annum, to be reviewed after a probationary period. He was to be paid monthly on the last Wednesday of each month. Clause 2, under a sub-heading "Company Vehicle/Vehicle Allowance", provided:
  8. "You will be eligible for a vehicle from Group B under the Company Vehicle scheme at your next car change. You can if you so wish opt to take a car allowance instead of a company vehicle. Further details are given in the enclosed policy."

    Clause 3 referred to various other terms which we need not detail, but we should mention the provision for the termination of the contract on notice, the length of notice varying with the length of service. The terms and conditions contain no provision to the express effect that, on termination of the contract, any car allowance currently being paid would cease to be paid.

  9. Also in the papers are the terms and conditions of employment of Mr David Fryer, who was, we are told, originally an applicant before the Tribunal, but who withdrew his application. He was employed with effect from 1 September 1998. His terms also included a term headed "Company Vehicle/Vehicle Allowance" but it was in fuller form than Mr Cooke's. Most of it concerned the terms which would apply if Mr Fryer elected to have a company vehicle, but it also provided that:
  10. "You can if you so wish opt to take a car allowance instead of a company vehicle"

  11. The document directly relevant to the current problem is the personnel policy manual headed "Remuneration and Benefits Package - Vehicle Allowance Scheme" which we will call "the Allowance Manual". It is dated 1 October 1999 and there is no dispute that at least initially it governed the terms on which the applicants opted for a vehicle allowance instead of a company car. Clause 1, headed "Policy", recited that:
  12. "It is the Company's policy to offer employees who are entitled to receive a Company vehicle, the choice of either a car allowance or a vehicle"

    Clause 2, headed "Eligibility", provided that:

    "Car allowance will only be approved for employees eligible to receive a Company vehicle on the following occasions:-
    (a) Commencement of employment.
    (b) Promotion from one car grade to another, providing the existing vehicle, if any, can be re-allocated.
    (c) At the end of the lease or due date for the replacement of a Company vehicle under the terms of the Company vehicle policy."

  13. Clause 3 is the provision which has given rise to the applicants' claims. It is in three paragraphs as follows:
    The appropriate level of allowance for each grade of vehicle is specified in Appendix 1. The allowance is reviewed annually and comes into effect on 1 April of any given year.
    An employee opting to take a car allowance will receive the same level of allowance for a period of 48 months from the date the allowance is first taken.
    The allowance will be paid through the payroll in monthly instalments and will be subject to income tax and national insurance deductions. It will be the responsibility of the employee to recover tax relief which is applicable from the Inland Revenue."

    Those three paragraphs are not numbered, but for ease of subsequent reference we will refer to them as 3.1, 3.2 and 3.3.

  15. Clause 4 is headed "Vehicle Insurance" and provided:
  16. "The employee's vehicle must be comprehensively insured including for Company business usage. The cost of insurance must be paid for out of the car allowance. A copy of the insurance policy and annual cover note must be forwarded to the Personnel Department. Failure to forward the relevant insurance documentation will lead to the withdrawal of the vehicle allowance."

  17. Clause 5 provided that the purchase of the road fund licence was the responsibility of the employee. Clause 6 imposed certain conditions as to the features of the cars which could be purchased by the employee, including that it must:
  18. "Be appropriate to the image of a representative of the Company"

    and that it should be maintained and serviced in accordance with the manufacturer's recommendations and at the employee's expense. By Clause 6, Siemens also reserved the right to withhold the car allowance if the vehicle was considered unsuitable. Clause 7 provided that Siemens would provide fuel for business mileage in accordance with normal mileage allowance rates for employees using company cars. Clause 8 imposed a condition requiring the employee to allow Siemens to install and change telephones in the car. Clause 9, headed "Approval", provided that in order to initiate the payment of the allowance the employee must complete a particular Vehicle Authorisation form and have it authorised by the appropriate Divisional director. Clause 10, headed "Status of the Policy", provided that:

    "The Company reserves the right to cancel or amend this policy"

  19. We refer also, because reliance was placed on it, to Siemens' personnel policy manual headed: "Remuneration and Benefits Package - Company Vehicle Scheme". We will call that "the Vehicle Manual". The version before us is dated 4 January 2002, which post-dates all the relevant events, but we are told that a similar manual was in place at all material times. The Vehicle Manual was directed at identifying Siemens' policy with regard to provision of company vehicles to its employees. Clause 1, headed "Policy", provided in part:
  20. "1.1 You will normally be eligible for a Company vehicle if you travel more than 12,000 miles per annum on Company business or if a vehicle is regarded as an essential tool for the satisfactory execution of your work….
    1.3 Subject to Director approval, if you are entitled to a Company vehicle, you may elect to provide your own vehicle and receive a cash allowance. Details of allowances and conditions are given in Policy 3m."

    Clause 2 was a long clause headed "Conditions of the Company Vehicle Scheme". Clause 2.12 provided:

    "In the event of the termination of your employment by the Company or by your resignation, the Company reserves the right to recall your vehicle on any date specified by the Company. In no situation will you be allowed to utilise the vehicle after your last day of employment with the Company. Reference the Personnel Policy No 2b 'Termination of Employment Procedure'."

    The decision of the Employment Tribunal

  21. The Tribunal said that the applicants' claims were for breach of contract, in particular of clause 3.2 of the Allowance Manual. It found as a fact that, in reliance on clause 3.2, the applicants had entered into finance agreements to purchase motor vehicles. It pointed out that the Allowance Manual did not include any break clause in relation to clause 3.2. It found further that the applicants would not have entered into the finance agreements had they thought Siemens would break what they regarded as its 48-month obligation. They would instead have opted for a company car. The Tribunal found that in about November 2001 Siemens gave the applicants notice of their impending redundancy. The applicants enquired as to the position with regard to the car allowance after the termination of their employment, and Siemens promptly issued a new policy document which the Tribunal found fundamentally altered the terms of clause 3.2 of the Allowance Manual. The new policy was dated 14 November 2001 and clause 9 provided:
  22. "When an employee leaves the Company, for any reason, the Vehicle Allowance will be paid by the Company only up to the end of the notice period. Under no circumstances will the Company be liable for any payment of Vehicle Allowance after the end of the notice period. Any finance agreement or personal lease arrangement entered into by an employee is the sole responsibility of the employee."

    The applicants declined to agree to that change to the Allowance Manual, one to which they had not agreed and over which they had not even been consulted. Siemens threatened to withhold redundancy payments but the applicants stood firm and continued to refuse to agree to it. They were dismissed for redundancy on 31 December 2001.

  23. Siemens then relented of its hard line with regard to the redundancy payments, which it duly made. It has, however, refused since 31 December 2001 to make any further vehicle allowance payments to the applicants: hence their claims to the Tribunal. The Tribunal recorded that it was part of the applicants' case that Siemens was estopped from asserting that it was entitled to terminate the payments. The basis of this was said to be that it had allowed the applicants to enter into their respective finance agreements on the understanding that they would receive payments for the full 48-month period.
  24. In coming to the reasons for its decision, the Tribunal recorded a concession by Siemens that, despite the terms of clause 10 of the Allowance Manual, those terms did not permit it to make, at any rate without prior consultation, a fundamental change to the terms of the Manual. The Tribunal concluded, rightly in our view, that if clause 3.2 of the Allowance Manual amounted to a contractual promise to make 48 months of payments, regardless of whether or not the applicants continued in Siemens' employment, the new term introduced in 2001 did purport to effect a fundamental change to that promise. In the light of Siemens' concession, the Tribunal therefore placed no weight on that new term and nor has any weight been placed on it in the argument before us by Mr De Silva. His argument has been to the effect that clause 3.2 did not impose any such contractual obligation on Siemens in the first place and that therefore the provision introduced by clause 9 of the amended policy manual was entirely unnecessary.
  25. The Tribunal found, in paragraph 4 of its reasons, that Siemens was in breach of contract in refusing to honour the terms of clause 3.2 of the Allowance Manual. It held that the compensation to which the claimants were entitled was for the sums they would themselves have to pay their finance companies for the balance of the 48-month period, or the lump sum payments required in order to enable them to settle their liabilities to those companies. It rejected Siemens' argument that clause 3.2 of the Allowance Manual was concerned only to identify the level of the relevant allowances rather than the period during which they were payable. It also rejected the submission that assistance in construing clause 3.2 could be derived from the Vehicle Manual. It referred to clause 2.12 of the latter but saw no reason why the Allowance Manual should be construed in conjunction with the Vehicle Manual. It held that the Vehicle Allowance scheme was a "stand alone" scheme which fell to be construed on its own.
  26. The appeal to this Appeal Tribunal

  27. The question before us, as before the Tribunal, is essentially a short question of construction as to the true interpretation of clause 3.2 of the Allowance Manual.
  28. We first make some general observations as to the task before us. We consider it to be a trite statement of principle that clause 3.2 does not fall to be construed in isolation but at the very least in the context of the Allowance Manual as a whole. We consider also that it has to be construed against the background that it was a scheme made available exclusively to certain of Siemens' employees, and that it was so available to them by way of an alternative of opting for a company car under the Vehicle Manual. Like all questions of construction, the interpretation of clause 3.2 of the Allowance Manual is a question of law. If and so far as the oral evidence which the Tribunal heard offered the witnesses' opinions as to the meaning of clause 3.2, that evidence was irrelevant and inadmissible.
  29. Further, if and so far as the Tribunal was influenced by the fact that the applicants claimed to have entered into their finance agreements "in reliance" on their understanding that clause 3.2 was in the nature of an unbreakable 48-month commitment, the Tribunal would, in our view, also have taken account of an irrelevant matter. If, on its true interpretation, clause 3.2 means what the applicants say it means, then what they did in reliance on it was irrelevant: they were and are entitled to succeed on their breach of contract claim. If, however, it does not mean what they say it means, then any reliance they claim to have placed on some different interpretation they may have put on it cannot be laid at Siemens' door. It is not Siemens' fault if the applicants have misinterpreted clause 3.2. The position would be different if there had been evidence that both Siemens and the applicants had throughout overtly conducted themselves on the basis that, whatever its true interpretation, clause 3.2 did in fact amount to an unbreakable 48-month obligation. In that event, the applicants might be able to invoke an estoppel by convention. But whether or not any such case was sought to be made before the Tribunal, it finds no discussion in the Tribunal's reasons and does not appear to found the basis of its decision. We interpret that decision to be simply to the effect that, on its true interpretation, clause 3.2 imposed a contractual obligation on Siemens to pay the applicants a car allowance at a given level for 48 months, whether or not their employment was determined during that period.
  30. Mr De Silva did not argue that clause 3.2 of the Allowance Manual imposed no contractual obligation at all on Siemens. We comment that it appears clear to us, as Mr De Silva emphasised, that one purpose of clause 3.2 was to provide an immediate qualification to clause 3.1. Clause 3.1 provides for an annual review of the level of allowance for each grade of vehicle, and at least one purpose of clause 3.2 is to make clear that, despite that provision, the level of allowance to which an employee will be entitled will remain the same as it was when first taken, despite any subsequent changes under clause 3.1 to the level of allowance for that employee's particular grade of vehicle. But, despite emphasising that point, Mr De Silva expressly acknowledged that clause 3.2 did impose a contractual obligation on Siemens to pay an allowance at the given level, and for 48 months, to those of its employees who opted for the vehicle allowance scheme. His primary submission was, however, was that if the Allowance Manual is construed against the background facts that the vehicle allowance scheme is one available exclusively to employees of Siemens, and by way of an alternative to taking a company car, it is obviously implicit in clause 3.2 that the entitlement to the allowance will only endure during such period as the employee remains an employee.
  31. Thus, he said, if an employee who has opted for the allowance scheme, ceases during the 48-month period to be an employee, Siemens' obligation to pay the allowance to him also ceases. Mr De Silva said that not only is the entitlement to such an allowance only available to someone who at any rate at the outset is an employee of Siemens, he pointed also to the various indicia in the Allowance Manual showing that it contemplates the allowance will only be payable to someone who is and remains an employee. He referred to clause 3.3 under which the allowance is to be paid through the payroll; to clause 4 relating to the employee's insurance obligations; to clause 6 imposing conditions as to the suitability of the vehicle for Siemens' purposes; to clause 8 relating to Siemens' right to install and change telephone equipment in the vehicle; and to clause 9 requiring the completion of an authorisation form each time an employee wishes to change the vehicle. Mr De Silva submitted that all of these provisions, read in the context of a scheme available only to Siemens' employees, are consistent only with the conclusion that it is implicit in clause 3.2 that the allowance will only be paid during such time as the employee remains in Siemens' employment.
  32. Although Mr De Silva displayed some reluctance to identify the relevant point in this way, Mr Segal, for Mr Walker, correctly in our view, identified the real question for us raised by Siemens' appeal as being whether there should be implied into clause 3.2 a term that Siemens' payment obligations come to an end with the termination of an employee's employment. Mr Segal's submission was that there was and is no basis for implying any such term. He asked rhetorically, why should such a term be implied? He said, in particular, that it is not permissible to imply a term that contradicts an express term, and he said that that is precisely what Siemens is seeking to argue for. Siemens assumed an apparently unqualified obligation to pay an allowance at a particular level for 48 months, and it is now saying that it is implicit that such obligation is to be brought to an immediate halt if and when the employee ceases to be employed by it. He said also that, in any discussion of the implication of such a term, there could well be legitimate differences as to the type of term that might be implied. Thus, for example, he acknowledged that there might perhaps be force in the view that an employee who chose to resign his employment ought not to continue to be entitled to enjoy the benefit of the Vehicle Allowance. He says, however, that it by no means follows that an employee who was made redundant by Siemens ought also to forfeit the benefit of the allowance. By way of further support for his argument that there is anyway no basis for implying any term, Mr Segal also contrasted the position under the Vehicle Manual in which clause 2.12 provides expressly for the employee to give up his company car if his employment comes to an end, whereas there is no analogous provision in the Allowance Manual. He also submitted that, to the extent that there is any ambiguity about the duration of the clause 3.2 obligation, it should be construed against Siemens on the basis of what used to be known as the contra proferentem rule.
  33. Mr Cooksey, for his six clients, adopted Mr Segal's arguments. He argued that the language of clause 3.2 is simple and unambiguous and imposes an unqualified obligation on Siemens to pay an allowance at a particular level for 48 months. He said that there is nothing in the Allowance Manual to suggest that the obligation is to be cut down if the employee ceases to be employed. He pointed to clause 6 of the Allowance Manual which does provide a right to withhold the allowance if the vehicle were considered unsuitable, and pointed out that no like right is observed if the employee ceases his employment. He said that no direct help to the construction of clause 3.2 of the Allowance Manual is to be derived from the Vehicle Manual. They deal with different schemes.
  34. In our view, the question for us is, as Mr Segal identified, whether a term can be implied into the unqualified provisions of clause 3.2 of the Allowance Manual that the obligation to pay the allowance automatically ceases with the termination of the employee's employment, however that employment may cease. We do not derive any assistance from the Vehicle Manual in answering that question. That is all about the provision to the employee of a company car and it would be odd if, on the termination of the employment, the employee were entitled to retain such a car, which is, after all, not his property but Siemens'. We would expect to find such a provision as clause 2.12 in the Vehicle Manual, and even if there were no such provision, it would appear to us to follow fairly obviously that on the termination of the employee's employment, he must hand back all Siemens' property, including any company car he was using.
  35. It is not, however, clear to us why clause 2.12 of the Vehicle Manual should be regarded as shedding relevant light on the true interpretation of clause 3.2 of the Allowance Manual. It is important to have in mind that the Allowance Manual was about a quite different type of transaction. It was one under which an employee was going to be incurring personal financial commitments to third parties in order to purchase his own car, and the purpose of the allowance was to enable him to defray the cost. Against that consideration, what we see in clause 3.2 is an apparently unqualified commitment by Siemens to pay an allowance at a particular level for a particular period. The premature determination of the payment of such an allowance would foreseeably, at least in some cases, be likely to visit financial embarrassment and hardship on the employee who had opted for the vehicle allowance scheme.
  36. Those considerations suggest to us that the vehicle allowance scheme had features about it which were materially different from the company car scheme, and we do not consider that the express inclusion of clause 2.12 in the Vehicle Manual can be said to provide a pointer towards a conclusion that an analogous term should be implied into clause 3.2 of the Allowance Manual. If anything, we regard the point as adverse to Mr De Silva's argument. Siemens has gone out of its way to provide in clause 2.12 that on the termination of the employee's contract, the company vehicle must be returned, yet it has included no provision of an analogous nature in the Allowance Manual to the effect that the payment of the allowance will cease if, for any reason, the employee's employment terminates. The applicants are entitled to say, and do say, that it is not so spelt out in the Allowance Manual because that was not what was intended.
  37. In our view, therefore, in the circumstances of this case, our task is to construe clause 3.2 in the context of the Allowance Manual as a whole, remembering, as the Allowance Manual anyway makes plain, that the benefit of a vehicle allowance is available, at least initially, only to certain Siemens' employees. The critical question is whether, having regard to the various features of the Allowance Manual to which Mr De Silva refers, clause 3.2 is subject to an implied term or proviso to the effect that the 48-month obligation shall forthwith determine upon the employee ceasing for any reason to be an employee.
  38. The question whether a term is to be implied into a contract is always one of law - see Mosfolds Rederi AS -v- Food Corporation of India [1986] 2 Lloyds Rep 68 at 70, per Mr Justice Steyn. There are traditionally three bases upon which a term may be implied. The first is the so-called "business efficacy" test which was explained in The Moorcock (1889) 14 P.D. 64. The basis of that test is that the contract is unworkable without the suggested term. We are not satisfied that that can be said of this contract, and nor did Mr De Silva suggest that it could. There is, in principle, no reason why the allowance cannot continue to be paid even thought the employee is no longer in the employment of Siemens. The mechanism for payment via the payroll is simply a convenient and administrative payment mechanism. It is not of the essence of the agreement that payment must be made in that way. The other provisions to which Mr De Silva referred, which all focus on the fact that the allowance is being made to an employee who would be using the car for company purposes, are similarly not provisions which mean that, unless the suggested term is implied, the contract is unworkable. These provisions will simply fall away and will not be enforced by Siemens. But that will not prevent the allowance continuing to be payable and paid.
  39. The second basis is that a term may be implied if it is a matter of obvious inference that it must have been intended. This is the "officious bystander" test, explained by Lord Justice Mackinnon in Shirlaw -v- Southern Foundries (1926) Ltd [1939] 2 KB 206, at 227. According to this test, the term will be implied if it is so obvious that it goes without saying:
  40. "so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a comment 'Oh, of course!"

    This test also imposes what Mr Justice Steyn called "a stringent test" in Associated Japanese Bank (International) Ltd -v- Credit du Nord SA [19891WLR 255, at 263. Although he was reluctant to accept that this case is about the implication of terms, Mr De Silva submitted that, if those principles are relevant, then the application of the officious bystander test supported the argument that the suggested limitation on the express terms of clause 3.2 should be implied.

  41. We do not accept that the officious bystander test does permit the requisite term to be implied. It is not the case that every incident of an employment relationship automatically comes to an end when the contract of employment ends (see Rhys-Harper -v- Relaxion Group plc [2003] IRLR 484, per Lord Nicholls of Birkenhead, at paragraph 36). As we have said, the test is a stringent one, and the rival arguments on both sides satisfy us that, had the officious bystander suggested the inclusion of a proviso dealing with the position following the termination of employment, the likelihood is that Siemens would have regarded it as thoroughly good advice and might well have responded that its draft had completely overlooked the point. It would then have had to give consideration to the nature of the proviso to be included in the Allowance Manual: in particular, should the allowance cease to be payable if the employment ceases for any reason, or should it only cease to be payable if the employee chooses to determine it? These would have been matters essentially of policy for Siemens. Of course, the Allowance Manual was not strictly in the nature of a contract negotiated between employer and employee, but we do not consider that that makes any significant difference to the application of the officious bystander test. We consider it sufficient to ask how Siemens would have reacted to the notional bystander's advice.
  42. The third basis for implying a term is that, in contracts falling within a particular generic class, it may be necessary to imply the term in order to make the contract, being one within that class, operate properly. The principle is illustrated by Liverpool City Council -v- Irwin [1977] AC 239 but necessity is an essential requirement before any term can be implied on this basis. We do not regard the Allowance Manual as being a contract of the type to which this principle applies, nor was the contrary suggested, and we can anyway identify no necessity for the implication of the term for which Mr De Silva contends.
  43. We have come to the conclusion that clause 3.2 means what it appears to say and we are satisfied that the Tribunal came to the correct decision. We are not satisfied that there is any sound basis for implying the term for which Siemens contends. We can see no necessity to imply the suggested term and we agree with Mr Segal that the suggested implied term expressly contradicts the express term of clause 3.2, a feature which ordinarily prevents the implying of a suggested term: see Equitable Life Assurance Society -v- Hyams [2002] AC 408, at 459 A-E per Lord Steyn. We dismiss the appeal.
  44. [Mr De Silva asked for permission to appeal to the Court of Appeal]

    Mr Cooksey, do you want to say anything about that? [Mr Segal was not present when judgment was delivered]

  45. Mr De Silva asks us to give permission to appeal. We recognise that this is a question of law and questions of law are often susceptible to different views by different courts. Nevertheless, we have come to the same decision as the Employment Tribunal. We have come to it with no real doubt and we retain at least a sufficient element of doubt as to whether this point is sufficiently arguable to justify its being considered by the Court of Appeal. In those circumstances, we propose to refuse permission and it will be for Siemens, if so advised, to renew its application before the Court of Appeal.

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