Sita Rama Swamy Kankanalapalli v Loesche Energy Systems Limited

SUMMARY Breach of Contract The ET had not considered (or if they had considered, did not explain why they discounted) the claimant’s submissions (i) that the contractual conditions were subsequent and not precedent and/or (ii) that the conditions of the offer imposed a degree of obligation on both parties such that the respondent did not have an unrestricted right to withdraw from it. Their conclusion on an implied term as to notice took into account matters that were not in the knowledge of both parties at the time of entering into the contract. The decision was set aside and the EAT, at the request of the parties, considered the matter itself, and concluded that: (i) the contractual conditions were, on the facts as found by the ET, conditions subsequent; (ii) reasonable notice in the particular circumstances of the case would have been three months and a term should be implied to that effect; and (iii) the respondent was in breach of contract by terminating the contract without reasonable notice. JUDGE SUSAN WALKER KC (HON.)

1. This is an appeal against a decision of Employment Judge Tuje sitting in London South Employment Tribunal at a hearing on 2 May 2023 ("the ET"). The ET dismissed the claim of breach of contract, and written reasons were sent to the parties on 20 June 2023. Permission to appeal was refused on the sift but subsequently granted without amendment by Judge Pilgerstorfer at a rule 3(10) hearing. From now on I will refer to the parties as "claimant" and "respondent", as they were below. Summary of the relevant facts

2. The claimant applied to the respondent for the post of project manager. He was offered the job on 23 September 2022, following an interview process. The offer letter, sent by email, proposed 1 November 2022 as the start date. The claimant was asked to return a signed copy of the offer letter. The claimant was also sent, with the offer, a form for referee contact details and what was described as a “new starter information form”.

3. The offer letter included the following paragraph: "I am pleased to offer you the position of project manager for Loesche Systems Limited. This is subject to receipt of satisfactory references, a right to work check and a successful six month probation period which will commence on your start date. The contract of employment will be forwarded to you before your first day." The letter did not provide any details about the notice period required to terminate the employment.

4. The claimant responded to the job offer, raising some queries, including whether relocation expenses would be included. Aware that the job would require him to spend some time in the Dominican Republic, the claimant had researched short-term lets and noted there was a shortage. In an email sent on 26 September 2022, the respondent confirmed that it would provide £3,000 towards relocation expenses that would be repayable if the claimant resigned within a year of joining. The respondent suggested that the claimant look for a 12-month rental as initially he would be based in the UK.

5. The claimant responded that day, confirming that the terms were acceptable and that he would sign and return the documents in few days. He explained that he was travelling but said : "Please take it that I accept the offer ". On 27 September 2022, the respondent wrote: "Dear Swamy, that is excellent news and we look forward to you joining us".

6. The claimant completed the new starter information form and also the form containing the reference contact details and sent these to the respondent. The respondent acknowledged receipt of these documents on 6 October 2022 and reminded the claimant to email documents confirming his right to work in the UK and that they would need to see the original documents on his first day at work. The claimant emailed the documents that day. He never returned a signed copy of the offer letter.

7. On 7 October 2022, the respondent advised the claimant that there had been a delay on the contract notice to proceed, and the role of project manager would not be required to start until 3 January 2023. The claimant was asked to confirm if this was acceptable? The claimant did not expressly accept the change of date. He replied that he had already booked flights to the UK for himself and his wife, and he sought clarification of what payment he would receive for November and December when he was not working.

8. On 11 October 2022, the respondent emailed the claimant, referring to notice to proceed on the contract having been delayed, and said: "As a result we, are no longer able to offer you the contract for the position of project manager commencing 1 November 2022.”

9. The letter continued, “We are able to consider a conditional offer based on the notice to proceed. However, we understand if you no longer wish to be considered."

10. The respondent never sent a written contract of employment to the claimant, and the claimant presented a claim to the ET for breach of contract. It was claimed that the offer was withdrawn without appropriate notice, and this amounted to breach of contract. The respondent argued that the claim was not accepted and/or the conditions had not been satisfied by the date the order was withdrawn. It followed that there was no agreement regarding notice or, alternatively, the claimant had received reasonable notice. Decision of the ET

11. The ET found that the offer had been accepted by the claimant's email sent on 16 September 2022, notwithstanding that it was not in the format initially requested by the respondent.

12. The ET found that the offer was subject to the two conditions set out in the letter of 23 September 2022: firstly, the receipt of satisfactory references and, secondly, the carrying out of a right to work check. It found that the contract was not subject to a condition of notice to proceed on the contract for which the claimant was to be employed.

13. The ET found that neither of the two conditions were satisfied. Although referee details were provided, it concluded this was not the same as receipt of satisfactory references and that the right to work check could not be completed until the respondent had seen the original documents. The ET concluded that because the offer was still conditional when the respondent withdrew, there was no binding contract between the parties.

14. In the alternative, if the Tribunal had found there to be a binding contract, it concluded that it was an implied term that, as the claimant had less than one month's service, the respondent would not be required to give any notice and they had in fact given him a week's notice. Grounds of appeal

15. There are 4 grounds of appeal and I will deal with them below. Ground 1:

16. The claimant contends that the ET erred in its construction of the offer terms by presuming that the respondent's conditions were precedent to the contract. Having started from the correct premise, the judge then misdirected herself in attempting to establish whether the offer then became unconditional before the respondent sought to withdraw the offer, instead of finding that there was a binding contract when the claimant accepted the respondent's offer.

17. The respondent submitted that it was accepted by the claimant that the offer of employment was a conditional offer. That was the starting point. Mr Ridgeway referred me to Chitty on Contracts 33rd Edition at 4-195 which states that “an agreement is conditional if it’s operation depends on an event which is not certain to occur” . He also referred me to Osborn’s Concise Law Dictionary 8th Edition at page 81 which states “A condition precedent is one which delay’s the vesting of a right until the happening of an event’”. He submitted that in plain terms this means that if that event does not occur there is no contract. It is submitted that all three conditions in the offer letter were therefore conditions precedent . Mr Ridgeway submitted it that it also means that if those conditions are not met, then the employer can be permitted to withdraw the offer on an unrestricted basis. Ground 1 – decision

18. Although not stated in terms, it is clear the ET has proceeded on the basis that the conditions were precedent to the contract coming into existence. Although the ET states that the claimant had agreed that the offer was a conditional offer, the ET does not appear to have considered that the claimant had qualified that agreement both at the oral hearing and in his written skeleton argument for that hearing, arguing that the conditions were not precedent to the contract but , on true construction, were conditions subsequent.

19. The respondent suggests that the conditions are “clearly” conditions precedent. However, that is a matter of construction in each case. There is no automatic meaning of words such as “subject to”. That means only that there is a condition. It does not determine what kind of condition it is.

20. The ET did not deal with the claimant's argument that the conditions were subsequent or explain why they had dismissed this argument. I consider that the ETl erred in not considering and determining this issue, it having been raised by the claimant and, potentially, having a significant impact on the outcome of the case.

21. Ground 1 succeeds. Ground 2.

22. The claimant referred to Chitty on Contracts at paragraph 4-198 where it states that the degree of obligation imposed on both parties depends on the true construction of the terms specifying the condition. This degree of obligation can range from any of the following: • an unrestricted right of withdrawal • a restricted right of withdrawal • a duty not to prevent the occurrence of the event • a duty of reasonable diligence to bring about the event.

23. The claimant submits that, given the facts and circumstances of the case, the respondent did not have an unrestricted right to withdraw from the agreement. Consequently, the respondent's ability to end the employment contract without liability to the claimant for an operative reason outside of the conditions was restricted.

24. In respect of the condition of right to work check, the claimant submitted that the respondent had already confirmed it had verified the claimant's documents by email, and, further, the respondent elected to schedule its desired action, physically verifying the documents, to a time after performance under the contract would have begun.

25. In respect of the employment reference checks, the claimant submits there were no outstanding actions on the part of the claimant. As the ET found in paragraph 46 of the judgment, the respondent did not contact the referees, and so it did not receive the references.

26. The claimant submits that the ET erred in deciding that the respondent's omissions or elections had the legal effect of the claimant being deprived of the benefit of the contract.

27. In reply, the respondent submitted that the degrees of obligation, according to the case law of Wishart and Mellors v RPS Tainer EAT 760/00, were all in favour of the employer and supported an unrestricted right to withdraw. The remainder of the respondent's submissions on this point contended that the claimant had never accepted the offer of employment. However, that point was decided by the ET, as noted above, and has not been the subject of a cross-appeal. Ground 2- decision

28. I consider that the ET was entitled on the evidence to conclude that the conditions had not been fulfilled by the date the respondent withdrew. References had not been provided and nor had the original documents required to check the right to work. The original document was to be provided on the start date. Whether the conditions were precedent or subsequent, the correspondence makes it clear that the original document had to be provided for that condition to be fulfilled before the claimant started work.

29. If the conditions are found to be subsequent, then this ground would fall away. However, even if the conditions were precedent, the ET should have considered whether the respondent was in breach of contract in terms of a subsidiary obligation not to withdraw before the date by which the conditions had to be fulfilled. This was the start date for the conditions relating to references and right to work checks. This point was clearly raised by the claimant in submissions before the ET and should have been considered and determined by the ET.

30. Ground 2 succeeds. Grounds 3 & 4

31. I will deal with Grounds 3 and 4 together as there is some overlap. The claimant contends that Wishar t is a relevant authority where an offer of employment is made subject to satisfactory references and the prospective employer does not regard the references as satisfactory. It is submitted that in this case the respondent did not see references at all and therefore the principles in Wishart do not apply to the factual matrix of this case, and that the ET's reliance on Wishart was therefore a misapplication of authority.

32. The claimant further submits that the features relied on by the respondent as distinguishing factors are not reasons to disapply the principles established in IPC Magazines Ltd v Ebner but merely required a careful and fact-sensitive application. The terms of a non-existent future contract cannot define the legal content of a contract that already exists, and the ET erred in so deciding. The law in relation to implied terms, the claimant submitted, was recently set out by Carr LJ in Yoo Design Services Ltd v Iliv Realty PTE Ltd [2021] EWCA Civ 560 .

33. In considering the alternative ground for rejecting the claim, the ET took into account the respondent's standard employment terms - a document the respondent had disclosed to the claimant for the first time during the proceedings on 16 March 2023. The claimant submits this is impermissible in light of the ET's own finding that if there was a binding contract it would have been made on 26 September 2022. The ET erred because it did not assess the question at the time the contract was made.

34. The claimant further submitted that the ET's interpretation of the legislation applying a notice period of zero days is misconceived. This is at odds with the established law on incorporation of onerous terms, requiring greater notice and specific highlighting of such terms to the party adversely affected. On the contrary, holding that the reasonable period of notice should be three months, the claimant submitted, would be consistent with common law rules and reported decisions on this question, given the seniority and other features of the claimant's proposed role.

35. The respondent contended that the ET was entitled to find that the correct period of notice was zero. Where a contract is silent on term or termination rights, it can still be terminated on reasonable notice. The respondent submitted that reasonable notice should be determined according to ordinary principles that apply to the implication of terms into a contract and with regard to the facts in existence at the time notice was given, as opposed to the time the contract was entered into. The respondent referred to Martin Baker Aircraft v Canadian Flight Equipment [1955] 2 QB 556 .

36. The respondent submitted that the court will look at the nature and structure of the contract to decide whether the parties intended it to be terminated, and what is reasonable notice is a question of fact for the court, depending on the individual circumstances of the case. The respondent submitted that in this case the contract of another employee set out what the terms of the contract would have been. Given that the contract of a more senior employee referred to a period of one week, the respondent submitted there is no reasonable argument that the claimant should receive more. Indeed, it submitted that the respondent would be unfairly penalised. Grounds 3 & 4 - Decision

37. I agree that the ET erred insofar as it relied on Wishart . Had references been provided, it would, in accordance with Wishart, have been open to the respondent to find them unsatisfactory and then the conditions would not be fulfilled. Whether the conditions were precedent or subsequent, there would be no ongoing contractual obligations in those circumstances. However, I agree with the claimant that reliance on that principle in this case was premature and did not specifically address the circumstances of this particular case where no references had been provided and this was not what was relied on by the respondent to terminate the contract.

38. I also find that the ET erred in its approach to the implication of a term of notice. The evidence about what the respondent's usual practice is, is not relevant to this question. That does not amount to custom and practice, as that must apply across an industry or location and not just to one employer. ( Chitty paragraph 17 - 037.).

39. The consideration of what would be reasonable notice has to be assessed when the contract has been entered into, not later. The respondent's reference to the case of Martin Baker does not assist them here. That case relates to the interpretation of whether a contract was permanent or terminable by notice. It was not authority for when the implied term of “reasonable notice” is to be assessed. On the contrary, para.51(vii) of Yoo makes it clear that, when considering whether a term should be implied, the parties' intention should be assessed at the time the contract was made. Had the contractual conditions been fulfilled without anything further, the consideration of what was a reasonable period had to be considered at the time the contract was entered into in September 2022.

40. I consider that the ET erred by focusing on what the employer’s position would have been and by taking into account that the claimant may have accepted the standard terms had they been offered at a later date. Those matters cannot be conclusive of what both the parties would both have agreed at the time of contracting when considering an implied term of notice. I consider that the ET erred in its approach to construing the implied term.

41. So for those reasons grounds 3 and 4 succeed. Disposal

42. Both parties are agreed that if I can determine the case myself, I should do so. Having considered the matter, the facts found by the ET and the undisputed documents before me, I consider I am able to deal with this myself rather than remit the case to the ET. IT is not necessary to find any additional facts.

43. I first consider whether the conditions in the offer letter were conditions precedent or subsequent. The claimant submits that on a true construction the conditions specified in the offer letter, i.e. the right to work checks, the employment references and the six month probation period, were conditions subsequent to the contract. The respondent points to the offer letter and says that the three conditions were not certain to occur and therefore that the offer was conditional. They refer to Wishart as authority for the proposition that it is for the employer to decide whether it finds the references satisfactory, and they also refer to the decision of the ET in Mellors v RPS Rainer where the EAT considered that a requirement for satisfactory references meant the formation of the contract depended entirely on the employer being satisfied with the references. The respondent also contended that the conditions in this case were not unforeseen circumstances, such as a person becoming bankrupt. They submitted that the ET was entitled to start from the premise that the conditions were conditions precedent.

44. Whether a condition is precedent or subsequent is a matter for interpretation. It is not something specific to a particular type of contract. I do not consider that the cases of Wishart or Mellors are relevant. In each of these cases, the decision was concerned with the employer's lack of satisfaction with the references or other checks, and the decision confirmed that it was a matter for the employer whether the references or other checks were satisfactory. Neither case conclusively considered the status of the conditional contract before the references had been provided. Although in Mellors , Langstaff J (as he then was) expressed some doubt as to whether a contract was formed at all, this was because of a specific wording of the offer which is quite different to the wording in this case.

45. I am persuaded by the claimant's argument that, in the facts and circumstances of this case, these were conditions subsequent. In making that assessment I have considered in particular the terms of the correspondence from the respondent that the claimant took me to this morning.

46. The offer letter of 23 September 2022 set out all the key terms of the contract: the start date, the salary, the hours of work, job description, holidays, bonus, pension etc. A document was provided to prepare the claimant for the first day of employment, and arrangements were made for his security pass. In addition, the document in which the claimant was to provide his reference details states: "I understand that my employment may be terminated without the provision of satisfactory references". It does not state that until these were provided there was no contract.

47. It is also relevant that there were three conditions in the offer letter. That included the satisfactory conclusion of probationary period. I consider that last condition is clearly a condition subsequent and there has not really been any argument that it is not. It is something that can only occur after the contract has started on the start date in the offer letter. The only logical interpretation is that this would be grounds to terminate an existing contract of employment. I consider it is relevant that the three conditions were all grouped together. There was no attempt to differentiate between them as conditions precedent and subsequent.

48. So all these factors, I consider, point to a concluded contract of employment but one that could be terminated if any of the three specified conditions was not fulfilled. I consider that on the evidence, all three conditions should be interpreted as conditions subsequent.

49. I therefore do not need to consider whether there was a subsidiary obligation, and I therefore turn to the question of notice.

50. Dealing first with whether a term should be implied into the contract, there was no discussion about a notice period at the time entering into of the contract. In these circumstances, it is necessary to imply a term of reasonable notice.

51. What is “reasonable notice” will depend the circumstances in each case. It is not the case that the period of notice is assumed to start from zero and that there has to be a reason to increase it. Section 86 of the Employment Rights Act simply provides minimum thresholds. It does not suggest that these apply in the absence of other provisions. Reasonable notice may exceed these statutory minimums.

52. I consider that the contractual term as to notice for another employee is not relevant. It was not put before the claimant at any point and a similar term was not agreed to by him. The contract of this other employee was produced during the litigation and is evidence only, at best, of the practice of the respondent. The practice of a particular respondent does not amount to custom and practice in the sense of justifying the implication of a term of a contract of employment. Further, that employee had a significantly shorter probation period than the claimant and so the two situations are not directly comparable.

53. I have considered the facts in this case. Both parties are agreed that three months’ notice would be reasonable notice for the job. The respondent’s argument was that during the probation period this should be less. However, this was never suggested to or agreed to by the claimant when the contract was entered into. The claimant was travelling to a different country to take up the post, the interview process had taken several months, the position was a senior one of a project manager and the respondent had suggested that the claimant take on a 12-month rental. In all these circumstances, I consider that a period of three months was reasonable notice. It is also relevant that if the claimant had not been performing to expectations, the respondent retained the right to terminate the contract at the end of the probationary period.

54. I therefore find that the respondent was in breach of contract by failing to give reasonable notice (being 3 months) in accordance with the implied term.

55. I paused at this point to allow parties to make further submissions, if they wished, on the additional sums sought by the claimant for reimbursement of the relocation payment for £3,000 and of holiday pay. I can deal with these matters fairly briefly.

56. In terms of the holiday pay, the claimant never started work. There is no doubt he had a contractual entitlement to annual leave, but that contractual entitlement would start to accrue on his start date. As that start date did not happen, I do not consider he is entitled to annual leave or payment in lieu.

57. I accept that a payment for relocation assistance was set out in the email of 26 September 2022 and was agreed to by the respondent. However, my interpretation of that clause is that this was to be paid as a lump sum after the claimant joined. I do not consider it was due in circumstances where the claimant did not in fact relocate, even though that was, of course, not his choice.

58. I will therefore substitute a judgment that the claim for breach of contract succeeds and that the respondent is ordered to pay to the claimant the sum of three months' notice. Note: a judgment in those terms was issued to the parties separately following the hearing.