Trowers & Hamlins acted for the successful Trustee in Bankruptcy in James Main v SpaDental Limited (1400999/2019), in relation to Employment Tribunal proceedings instigated by a bankrupt in relation to unpaid holiday pay, claiming an entitlement to the unpaid sums relating to the period prior to the bankruptcy order.
The bankrupt, a dentist, had initiated an Employment Tribunal claim against the former dental practice in which he had been an associate. He alleged he was owed unpaid holiday pay under Regulation 16(1) of the Working Time Regulations 1998 ("WTR"). A preliminary hearing had determined he was a 'worker' within the meaning of Regulation 2(1) of the WTR.
The period of time for which the bankrupt was claiming payment spanned a number of years pre-bankruptcy, as well as the year of bankruptcy and a couple of years post-bankruptcy. The claim was commenced by the bankrupt after his discharge from bankruptcy for the entire period.
The trustee became aware of the Employment Tribunal proceedings, and applied to be joined as an interested party, possible according to rule 35 the Employment Tribunal's Rules of Procedure. As the claim was live, and notwithstanding the Trustee's argument the bankrupt did not have locus to bring the claim, this was a pragmatic approach that would keep the timetable going and allow the Trustee to participate in the event an award was made. This application was granted on the basis of the Trustee's legitimate interest in the outcome of the claim, and notwithstanding the bankrupt's opposition.
In relation to the issues between the bankrupt and the respondent, the Tribunal awarded a sum in respect of unpaid holiday pay, finding that the respondent had failed to allow the bankrupt to exercise the right to paid annual leave, and that the bankrupt was entitled to be paid for leave not taken on a year by year basis until the particular employment terminated. The Tribunal made an award but declined to award interest.
Thus, it was necessary for the Tribunal to consider the nature of the award and to whom the award should be paid.
The Trustee's position was that the claim was proprietary in nature, vesting in the Trustee, and submitting that unpaid holiday pay was not within the exceptions to claims which vest in the estate as explained by Hoffman LJ in Heath v Tang [1993] 1 WLR 1421 as those cases in which "the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without immediate reference to his rights of property".
It is well established law that claims for unfair dismissal, injury to feelings in discrimination claims and the right to a declaration in a discrimination claim are all personal in nature. The Trustee argued that unpaid holiday pay was not analogous to the nature of unfair dismissal or injury to feelings.
In relation to the fact that the claim related to unpaid holiday pay for a period spanning the pre-bankruptcy, bankruptcy and post-bankruptcy period, the Trustee argued that this should be treated as if a 'hybrid' claim in the way set out in Ord v Upton [2000] Ch 352 (CA), and should therefore be treated as a single cause of action which vests in the Trustee.
The Trustee also raised issues of the bankrupt's conduct in the bankruptcy, including the fact that the bankrupt had previously received sums on behalf of the bankruptcy estate, and instead of remitting them to the estate, had dissipated the relevant sum. Therefore the Trustee sought a specific order that any award should be paid in whole or in part to the Trustee direct.
The questions for the Tribunal relating to the Trustee's interest in the claim and that award were as follows:
- Was the Claimant’s claim a personal, proprietary or hybrid claim?
- If hybrid, what proportion of the claim is personal and what proportion is proprietary (or from what point in time should the claim be treated as personal)?
- If the claim is proprietary or hybrid, should the Tribunal order it to be paid to the trustee and if so, on what terms?
The bankrupt opposed this, arguing that the claim could only be brought on termination of the employment pursuant to Regulation 13 of the WTR, and therefore had not arisen prior to the making of the bankruptcy order. Further, the bankrupt argued that the claim was personal in nature, arising out of his status as a worker.
In the judgment, which can be found here, the Tribunal found that a claim for unpaid holiday pay was akin to a breach of contract claim, and was accordingly proprietary in nature, vesting in the Trustee.
Nothing the Trustee's allegations about the bankrupt's conduct, and the fact that the Trustee is an officer of the Court, the Tribunal ordered the respondent to pay the entire award to the Trustee. The Tribunal declined to give further directions in relation to the relevant sum, pointing out that the Trustee is subject to the applicable provisions of the Insolvency Act 1986. Thus, the Trustee will hold sums relating to the post-bankruptcy period on trust for the bankrupt.
The bankrupt has appealed the decision on two grounds: (i) and (ii) the Tribunal erred in not awarding interest on the unpaid sum. At the time of writing, we are awaiting the outcome of the initial review by the Employment Appeal Tribunal, although the Trowers' team advising the Trustee, made up of lawyers in our Insolvency and Employment teams, regard the judgment as sound in all aspects. Nevertheless, the decision is an interesting example of insolvency law interplaying with employment law, and of the Employment Tribunal being asked to consider the nature of assets and authorities considering the interpretation of the insolvency legislation.
