OverviewKeeley v Fosroc International Ltd

Overview | [2006] EWCA Civ 1277, | [2006] IRLR 961, | [2006] 40 LS Gaz R 33, | 150 Sol Jo LB
1328, | [2006] All ER (D) 65 (Oct)

KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006]

IRLR 961

[2006] EWCA Civ 1277

Court of Appeal, (CA)
05102006

100 Contracts of employment

124.7 Terms of employment – pay – redundancy payments

The facts:

Christopher Keeley was employed by Fosroc International under a contract of employment consisting of a written
statement of employment terms which incorporated, by reference, the employers' staff handbook, “Policies for
People”.

The handbook was divided into three parts: employee benefits and rights; working procedures; and rules and
disciplinary procedures. The part headed “employee benefits and rights” contained a number of sections dealing
with different aspects of employees' rights and benefits, namely annual leave, equal opportunities, grievance,
parental leave, paternity leave, pregnancy and maternity rights, redundancy, retirement, special leave and trade
union membership.

The redundancy section contained general statements of the employer's intention to deal with redundancies fairly
and consistently and dealt with certain procedural aspects of handling redundancies when they arose. It also
contained provisions giving those made redundant the right to time off to look for alternative work and the right to
appeal against their dismissals. Under the heading “compensation”, it provided that: “Those employees with two or
more years' continuous service are entitled to receive an enhanced redundancy payment from the company, which
is paid tax free to a limit of £30,000. Details will be discussed during both collective and individual consultation.”

Although the provision made no reference to how the enhanced redundancy payment would be calculated, it was
generally understood that the payment referred to consisted of two elements; first, a payment calculated by
multiplying weekly salary at the date of redundancy by double the number of weeks provided by statute and,
second, a payment in lieu of notice on a gross basis.

Following his dismissal on grounds of redundancy in July 2004, Mr Keeley claimed that, by virtue of that provision,
he was contractually entitled to receive an enhanced redundancy payment calculated on that basis. The employers
disputed his claim. He therefore commenced proceedings against them claiming that his contract of employment
expressly entitled him to an enhanced redundancy payment or, alternatively, that such entitlement was to be
implied by custom and practice.

The High Court judge concluded that the provisions of the staff handbook were incorporated into Mr Keeley's
contract of employment in so far as they were apt to be terms of a contract of employment, but that the enhanced
redundancy payment provision was not so apt. According to the judge: “Whilst this provision is expressed not as
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

some aspiration but as a statement of the entitlement of the employee, it is in the context of an exposition of the
principles and particularly the procedures to be applied in handling redundancies. Few, if any, of the other parts of
the section on redundancy would be apt for incorporation into individual contracts of employment. Although the
word 'entitlement' is expressly used, the whole provision must take its colour from the context.” He went on to
conclude that, in its context, the word 'entitlement' “was used to signify no more than what the employee could
expect to receive under the employer's policy and not as denoting any contractual right”. In reaching his decision,
the judge took into account the variously expressed views on both sides in the formulation and application of the
provision. The judge also rejected Mr Keeley's alternative claim that he was entitled to the enhanced redundancy
payment by way of an implied term of his contract of employment, holding that no such term could be implied.

On appeal to the Court of Appeal, Mr Keeley submitted that whether the enhanced redundancy payment provision
was apt for incorporation as a contractual term was a matter of construction of the nature and wording of the
provision in the con-

[*962]

text of the staff handbook in which it was contained, and that the judge had wrongly relied on extraneous material
as an aid to construction of the express term. Mr Keeley maintained that the provision was clearly apt for
incorporation as a contractual term because it was part of his remuneration package, it used clear language of
entitlement, and it should be construed in its context in the staff handbook, in particular its location in the part
entitled “employee benefits and rights“.

The employers argued that the judge had been right to approach the matter as he did and had reached the correct
conclusion. They also submitted that even if, as a matter of construction, the provision was apt for a contractual
term, it was too uncertain to have that effect because of the absence from it of any formula for calculation of the
payment.

The Court of Appeal (Lord Justice Auld, Lord Justice Dyson, Sir Martin Nourse) on 5 October 2006 allowed the
appeal.
The Court of Appeal held:
124.7
The High Court judge had erred in holding that a provision in the employers' staff handbook which provided that:
“Those employees with two or more years' continuous service are entitled to receive an enhanced redundancy
payment from the company, which is paid tax free to a limit of £30,000. Details will be discussed during both
collective and individual consultation”, was not apt for incorporation in the claimant's contract of employment and
that, accordingly, he was not contractually entitled to an enhanced redundancy payment when he was dismissed
on grounds of redundancy.
Where a contract of employment expressly incorporates a document such as a collective agreement or staff
handbook, it does not necessarily follow that all the provisions in that document are apt to be terms of the
contract. Some provisions, read in their context, may be declarations of an aspiration or policy falling short of a
contractual undertaking. However, the fact that the document is presented as a collection of “policies” does not
preclude their having contractual effect if, by their nature and language, they are apt to be contractual terms. It is
necessary to consider in their respective contexts the incorporating words and the provision in question
incorporated by them.
The fundamental starting point is the wording of the provision itself and the aptness of the provision in its own
right to be a contractual term. If put in clear terms of entitlement, it may have a life of its own, not to be snubbed
out by context immediate or distant in the document of which it forms a part. Where the wording of the provision,
read on its own, is clearly of a contractual nature and not contradicted by any other provision in the documentary
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

material constituting the contract, context is not all.

The importance of the provision to the over-all bargain is also highly relevant. A provision which is part of the
employee's remuneration package may still be apt for construction as a term of the contract even if couched in
terms of information or explanation, or expressed in discretionary terms. Provision for redundancy,
notwithstanding statutory entitlement, is now a widely accepted feature of an employee's remuneration package
and, as such, is particularly apt for incorporation by reference.
In the present case, on its own wording and by the nature of the subject-matter, the enhanced redundancy
payment provision was apt to be a contractual term that was incorporated by reference along with other
provisions of the staff handbook that were similarly apt. In its use of the word “entitled” and its location in the
“employee benefits and rights” part of the staff handbook, the provision clearly referred to a legal right. Other
sections in that part, for example those providing entitlements in respect of annual leave, parental leave and
paternity leave, were also part of the context in which the entitlement in the redundancy section fell to be
considered. In the redundancy section itself, the provisions for paid time off to look for work elsewhere and the
right to appeal against dismissal were close supporting context for concluding that statements of entitlement in
that section were intended to have contractual effect. Such matters were clearly to be treated differently from the
quite distinct procedural, aspirational or discretionary matters in the section going to the selection of employees
for redundancy.
Although the enhanced redundancy payment provision was conditional on its “details” being found elsewhere, it
was not vitiated by uncertainty since it identified the means of reference by which appropriate payment would be
calculable when the time came.
Cases referred to:
Air Great Lakes PTY Ltd v K S Easter (Holdings) PTY Ltd [1985] 2 NSWLR 309 Court of Appeal of New South
Wales
Alexander v Standard Telephone and Cables Ltd (No.2) [1991] IRLR 286 HC
Briscoe v Lubrizol Ltd [2002] IRLR 607 CA
Carmichael v National Power plc [2000] IRLR 43 HL
Clark v Oxfordshire Health Authority [1998] IRLR 125 CA
Horkulak v Cantor Fitzgerald International [2004] IRLR 942 CA
Kaur v MG Rover Group Ltd [2005] IRLR 40 CA
Nethermere (St Neots) Ltd v Gardiner [1984] IRLR 240 CA
Appearances:

For the Appellant:

TIMOTHY BRENNAN QC and AKASH NAWBATT, instructed by Abel-Brown

For the Respondents:

GEOFFREY COX QC and RICHARD DAVISON, instructed by Dechert LLP

LORD JUSTICE AULD:

Introduction
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

This is an appeal by Christopher Keeley from the order of HHJ Reid QC, sitting as a judge of the High Court, on 14
November 2005, that he was not entitled to an enhanced redundancy payment on his dismissal for redundancy by
the respondent, Fosroc International Ltd ('Fosroc') on 7 July 2004. Mr Keeley's case before the judge and on appeal
is that his contract of employment with Fosroc expressly entitled him to an enhanced redundancy payment,
alternatively that such entitlement was to be implied from custom and practice.

Mr Keeley's contract of employment consisted of a written statement of employment terms incorporating by

reference Fosroc's staff handbook, entitled 'Policies for People'. The provision in issue was in a section under the
heading 'redundancy' in the first part of the handbook entitled 'Employee benefits and rights'. It provided:
'Those employees with two or more years' continuous service are entitled to receive an enhanced redundancy payment
from the company, which is paid tax free to a limit of £30,000'. Details will be discussed during both collective and individual
consultation' (my emphasis).
It is common ground that the payment referred to in that provision, which I shall call 'the enhanced redundancy
payment provision' consisted of two elements, first, a payment calculated by multiplying weekly salary at the
[*963]

date of redundancy by double the number of redundancy weeks provided by statute, and, secondly, a payment in
lieu of notice on a gross basis.

The staff handbook contained a large number of provisions capable of having contractual force. Many were
expressed in terms of rights and obligations, and were typical of contracts of employment between a large employer
such as Fosroc and individual members of a largely unionised workforce. Importantly, they were not to be found in
any other documentation capable of having contractual force between Fosroc and each of its employees. In
particular, the statement of Mr Keeley's employment terms made no express reference to redundancy, unlike
disciplinary and grievance procedures, the inclusion of which was required by statute. The judge, in paragraph 29 of
his judgment, found on the evidence that the staff handbook 'was a first point of reference for any employee who
had a query'. And Fosroc acknowledged as much in paragraph 7 of its defence, averring:
'... Policies for People serves a dual purpose. It is both a personnel manual and an employee handbook. It has existed for
many years and was produced by and/or for the personnel department of Fosroc['s predecessor company]. It has a loose
leaf format and is updated from time to time to reflect legislative changes and changes in company policies and procedures
...'

The judge, in paragraphs 44 and 50 of his judgment, concluded that the provisions in the staff handbook were
incorporated into Mr Keeley's contract of employment in so far as they were apt to be terms of a contract of
employment, but that the enhanced redundancy payment provision was not so apt. He also rejected Mr Keeley's
alternative claim that he was entitled to such a payment by way of an implied term of his employment based on
custom and practice, holding that no such term could be implied.

5
The contract of employment

The statement of Mr Keeley's employment terms provided:

'This statement sets out the main terms of your employment with the company. It supersedes any previous statement of
terms issued to you.
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

Other relevant information may be found in the company information folders, and other terms and conditions of your
contract may be found in your offer letter. If there is a conflict between the company information folders and this statement,
this statement will prevail. Any subsequent amendment to terms and conditions will be set out in writing to you, or in
general staff notices.'

Before turning to the issue whether the enhanced redundancy payment provision set out in the staff handbook
conferred on Mr Keeley an express contractual entitlement to such a payment, I should put it in context by referring
briefly to its genesis and then look at the structure and content of the handbook as a whole.

Like Gaul, the staff handbook was divided into three parts; they were headed respectively: 'employee benefits and
rights', 'working procedures' and 'rules and disciplinary procedures'. As I have mentioned, the enhanced
redundancy payment provision was in the 'employee benefits and rights' part. It was under the heading,
'redundancy', one of a number of headings dealing with different aspects of employees' rights and benefits. These
were: 'annual leave', 'equal opportunities', 'grievance', 'parental leave', 'paternity leave', 'pregnancy & maternity
rights', 'redundancy', 'retirement', 'special leave' and 'trade union membership'. The rights and benefits to
employees indicated by those headings are, by their very nature, the stuff of a modern contract of employment –
part of the remuneration package. They are all part of the context in which the entitlement in the redundancy section
falls to be considered.

Before looking at the redundancy section, I should mention that the second and third parts of the staff handbook,
'working procedures' and 'rules and disciplinary procedures', contain, as might be expected from the headings to
their respective sections, many plainly contractual provisions. Those under 'rules and disciplinary procedures' are:
'absenteeism/timekeeping', 'car users', 'computer/word processor users', 'expenses', 'people development',
'recruitment' and 'relocation'. And, included under 'rules and disciplinary procedures', are: 'discipline', 'health &
safety', 'long service', 'security' and 'smoking'.

Focusing now on the redundancy section in the 'employee benefits and rights' part, there are provisions in it, apart
from the enhanced redundancy payment provision, clearly indicative of contractual entitlement, in particular those
for paid time off work to look for employment elsewhere and the right to appeal against dismissal. Its genesis lay in
a draft by Fosroc's human resources manager of the day, which, after circulation to other managers and to trade
union representatives for consultation and consequent amendment, was inserted in the staff handbook. It consists
of five pages and passages under various headings. The first two passages are headed respectively 'purpose' and
'introduction'. They are couched in terms of aim and intention, and are clearly directed at how, from time to time,
Fosroc would determine, on a case by case basis, who should be made redundant, not at entitlement to, or the
manner of calculation of, compensation for redundancy once determined:
'Purpose

It is the company's aim to ensure any redundancies are dealt with in a fair and consistent manner, with due regard to both
the needs of the company and the well being of the redundant employee and the employees remaining in the company.

Introduction
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

Whilst it is the company's intention to develop and expand its business activities and thus provide a stable work
environment and reasonable security of employment for its employees, it must ensure economic viability within an
increasingly competitive business environment.

Therefore, situations may arise which necessitate the need for reductions in numbers employed. In order to minimise the
impact of such reductions, the following procedure will be adopted wherever possible.

However, it must be recognised that where the needs of the business so dictate, the procedure will be adapted to the
particular circumstances which prevail.'
Following a discussion under the third heading, 'definition', on the meaning of redundancy, the document continues,
under the fourth heading, 'procedure' and its sub-headings, 'consultation', 'selection' Alternative work', 'time off' and
'appeals', with a statement of how Fosroc would approach its task of determining redundancy when the need arose.
Passages under the last two of those sub-headings contain provisions that are clearly capable of having contractual
effect. Under 'time off', it provides:
'During their final notice period, employees will be given reasonable paid time off to look for work outside the company.' 1
And, the first paragraph under 'appeals' provides:
'As with any form of dismissal, employees who have their employment terminated on grounds of redundancy will be
accorded the right of appeal against dismissal.'

10

It is only on the fourth page, under the fifth heading, 'compensation', that the document, in the two sentence
enhanced redundancy payment provision, deals with compensation for redundancy, expressing it in terms of an
entitlement, but without referring to the method of its calculation or amount, save only to identify the maximum
payable [tax free] and to indicate that the details were for collective and individual consultation. On the evidence
before the judge, the human resources manager
[*964]

responsible for the draft did not include the company's redundancy calculation formula in the staff handbook lest
departmental managers erred in calculating individual entitlements, a task to be reserved to the human resources
department.

11

That is all that the contractual documentation says about compensation for redundancy. The redundancy section
moves on under the sixth and last heading, 'the people management aspects', to deal with ways of avoiding
compulsory redundancies, methods of communication with affected employees and maintenance of the morale of
those not affected.

12

Having now put the enhanced redundancy payment provision in the context of the staff handbook as a whole, in the
narrower context of the 'Employee benefits and rights' part and, in particular, the 'redundancy' section of that part, I
repeat the provision for convenience of reference:
'Those employees with two or more years' continuous service are entitled to receive an enhanced redundancy payment
from the company, which is paid tax free to a limit of £30,000. Details will be discussed during both collective and individual
consultation.

13

A related question to that of aptness for a contractual term is whether the enhanced redundancy payment provision,
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

in its lack of reference to the manner of calculation, say, by reference to service lengths, pay and periods of pay,
and proximity to retirement, is, in any event, too uncertain to have contractual effect. Mr Geoffrey Cox QC, on behalf
of Fosroc so contended, notwithstanding Fosroc's admission, in paragraph 10 of its defence, of the following
formula alleged by Mr Keeley in paragraph 4 of his amended claim:
'...

(a) for all employees an enhanced redundancy payment calculated using the following formula: current weekly salary x
double the statutory redundancy weeks;

...

(b) A payment in lieu of notice on a gross basis'.

On the face of it, such an admission amounts to an acknowledgement by Fosroc of both the nature and manner of
quantification of the enhanced redundancy payment to be made to Mr Keeley if he was otherwise contractually
entitled to it. However, Mr Cox challenged whether such a pleaded admission was sufficient to correct the
uncertainty, which, he maintained, was inherent in the words of the enhanced redundancy payment provision when
read in context. And he maintained that if it was so sufficient, it should be disregarded as a pleader's error, referring
the Court to Fosroc's denial in paragraph 11 of its defence of any entitlement of Mr Keeley to the claimed payment,
in particular in paragraph 11(d).
'an enhanced redundancy payment is referred to but not specified. This is left to 'be discussed during both collective and
individual consultation;'

14
The judgment

Because of Mr Keeley's reliance on an implied term based on custom and practice as an alternative to his case as
on express term, both parties put before the judge a good deal of evidence on that alternative issue, evidence that,
on the face of it, would have been inadmissible as an aid to construction of the alleged express term. It included
evidence of consultation and negotiations over the years between, on the one hand, Fosroc and its predecessor(s)
and, on the other, union representatives and individual employees, as to the formulation and subsequent operation
of the provision, and of declarations and claims on either side as to its legal effect or lack of it and as to the
calculation of the payment. All this evidence left the judge with the overall impression, as he put it in paragraph 75
of his judgment, 'of a fixed basic policy but subject to variation on some points', namely of payment by Fosroc of an
enhanced redundancy payment on terms the same as or similar to those claimed by Mr Keeley, any substantial
discrepancies being in the main due to particular circumstances of certain cases. The evidence also revealed a
consistent pattern of resistance by Fosroc to acknowledging any contractual obligation to make such payments and
a sometimes acquiescent or ambivalent attitude to that stance by the union and individual employees, including in
earlier years Mr Keeley.

15

There was considerable overlap in the judge's treatment in his judgment of such evidence – extraneous to the issue
of express term but relevant and admissible to that of implied term – between the two alternative, but not always
readily distinguishable, issues, one of construction of the effect of the enhanced redundancy payment provision
read in context, and the other as to implication of a contractual term, 'recognised by that provision' from custom and
practice.

16

The judge purported to deal first in his judgment with Mr Keeley's claim based on the enhanced redundancy
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

payment provision as an express term. His reasoning on this is to be found principally in paragraphs 44 and 50 of
his judgment, and that in relation to the implied term in paragraphs 82 and 83:
'44. Absent any other “company information folders” it seems to me that the terms of “Policies for People” were
incorporated into the contract in so far as they spelled out terms of employment. This however does not ... incorporate all
the provisions of the handbook into the contract as contractual terms. Much of it is spelling out company policy rather than
setting out anything that could be regarded as a contractual term.

...

50. ... I have to construe the words of the particular paragraph relied on in their context. Whilst this provision in the
handbook is expressed not as some aspiration but as a statement of the entitlement of the employee, it is in the context of
an exposition of the principles and particularly the procedures to be applied to handling redundancies. Few, if any, of the
other parts of the section on redundancy would be apt for incorporation into individual contracts of employment. Although
the word “entitlement” is expressly used, the whole provision must take its colour from the context. As one of the managers
... pointed out during the consultation process on the policy: “No redundancy payment can be cast in stone, and it depends
on the circumstances the company finds itself in at the time.” The document very carefully avoids spelling out what the
enhanced terms are to be (despite pressure from the union representatives for some formula to be included in the
document). In my judgment when one looks at the document as a whole (even leaving out of account its genesis as a
statement of policy produced by an HR manager rather than a document approved by the board) the document cannot be
said to import into the claimant's contract a contractual right to an enhanced redundancy payment.

...

82. The picture that the witnesses painted of their belief in a contractual entitlement to an enhanced redundancy payment
was in my view coloured by hindsight and a very natural disappointment at the disappearance of something they had
regarded as a certainty not only for themselves but for their colleagues. I am reinforced in that view by the obvious difficulty
that the claimant had in spelling out precisely what his legal right was ....

83. I have taken account of the language used: the word 'entitlement' in “Policies for People” has been relied upon but I
think in its context was used to signify no more than what the employee could expect to receive under the employer's policy
and not as denoting any contractual right ...'

17

As to Fosroc's reliance in any event on uncertainty, the judge observed that it was a difficult contention because
[*965]

it was common ground that the sum claimed by Mr Keeley was the minimum of what the parties understood to
mean by the expression 'enhanced redundancy payment'. He also said that, in any event, Mr Keeley would have an
implied contractual entitlement to an exercise by Fosroc of a discretion along the lines indicated by this Court in
Horkulak v Cantor Fitzgerald [2004] IRLR 942, CA; in particular per Potter LJ, giving the judgment of the Court, at
paragraphs 46 and 47. This is how the judge dealt with that issue in paragraph 52 of his judgment:
'The defendant submits that the wording of the compensation paragraph is vague and general. It does not say how the
payment is to be enhanced. It refers to no document that would elucidate this. Indeed, it could not be cured because the
wording is “an enhanced payment” and not “the” or “the customary enhanced payment”. So even if they had a particular
enhancement in mind, they would be unable to say that it was that which was referred to in the contract. In my judgment
this is a mistaken point. If there were a standard method of enhancement (as the claimant submits there was), the fact that
it was described as “an enhanced payment”, would not make the term uncertain. The point is only valid if the claimant is
wrong in his assertion that were was a well-settled practice as to how the customary enhanced payment was to be
calculated. In that event the Horkulak point would arise. In this case however the uncertainty point is a difficult one for the
defendant to run. It has admitted that the enhanced payment referred to in Policies for People “included” the items claimed
by the claimant and has not sought to adduce evidence that there were other items included in the “enhanced payment”
referred to. Were I satisfied that there was an express contractual term, I would be satisfied that the enhanced payments
were as claimed by the claimant.'
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

18
The submissions

Mr Timothy Brennan QC, for Mr Keeley, submitted that whether the enhanced redundancy payment provision was
apt for incorporation as a contractual term was a matter of construction of the nature and wording of the provision in
the context of the staff handbook in which it was contained. He maintained that it was clearly apt for incorporation
as a contractual term because: (1) it was part of Mr Keeley's remuneration package; (2) it used clear language of
entitlement; and (3) it should be construed in its context in the staff handbook, in particular its location in the part of
it entitled 'Employee benefits and rights'. He maintained that, to the extent that the judge relied upon the extraneous
material (to which I have referred in summary in paragraph 14 above), as an aid to construction of the express term,
it was inadmissible for the purpose.

19

As to absence from the enhanced redundancy payment provision of any express description of or formula for its
calculation, Mr Brennan submitted, consistently with the judge's observations in paragraph 52 of his judgment: (1)
that the reference to 'an enhanced redundancy payment' was sufficient identification of the means of calculation,
given the evidence of clear understanding by the parties of the minimum applicable formula and Fosroc's admission
in its defence of that formula; and (2) even if that were not sufficient, it would not preclude the provision from having
effect so as to require Fosroc to exercise a discretion in the matter to achieve the result claimed, as in Horkulak.

20

Mr Cox sought, on Fosroc's behalf, to justify the reliance of the judge on the extraneous evidence in his
consideration and rejection of the claimed express term as well as of the implied term. As I have said, there was
considerable overlap in the judge's treatment of and reliance on such evidence on both issues. Mr Cox
acknowledged that if the judge had been construing a contract he would have been bound by the familiar rules of
law excluding resort to such evidence for the purpose of construing the express terms of a written contract.
However, he submitted that the judge was not construing a contract, but 'part of a document in its over-all context in
order to determine whether it was a contract at all'. Such an exercise, he maintained, was purely one of fact and for
resolution as such before embarking on the task of construction. For the purpose of resolving that issue of fact, he
submitted that the judge was entitled to look at extraneous material in so far as it was capable of shedding light on
the document's contractual status. In making those submissions, Mr Cox relied upon the ruling of the majority of the
Court of Appeal of New South Wales in Air Great Lakes PTY Ltd v K S Easter (Holdings) PTY Ltd [1985] 2 NSWLR
309, and observations of Lord Irvine of Lairg and Lord Hoffmann in Carmichael v National Power plc [2000] IRLR
43, HL, to which I shall return.

21

Secondly, and from that starting point, Mr Cox submitted that the enhanced redundancy payment provision, looked
at, as the judge looked at it, in the light of its genesis, application and context, was not apt to form part of an
individual contract of employment. He maintained that the judge had correctly, in paragraphs 44 and 50 of his
judgment, regarded the redundancy policy as 'marooned' amongst other provisions that were obviously non-
contractual, drawing on reasoning of Hobhouse J, as he then was, in Alexander and others v Standard Telephones
and Cables Ltd (No.2) [1991] IRLR 286, at paragraph 36, that in such a circumstances clear and specific express
words of incorporation contained in the primary contractual document were required to achieve incorporation:
'In this context, where none of the other clauses of the collective agreement are apt to be incorporated into the individual
contract of employment, it would require some cogent indication in clause 6 that it was to have a different character and to
be incorporated into the individual contracts of employment. The plaintiff's submissions gain nothing from the context within
which clause 6 is to be found; indeed the context strongly detracts from their case.'
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

Mr Cox submitted that, given the overall context of the staff handbook as a statement of policies and, as he
maintained, the lack of any other candidate for a contractual term in the redundancy section of it, the fact that the
provision was in the part of the handbook headed 'employee benefits and rights' and was expressed in the
language of entitlement were too flimsy a basis for disturbing the judge's rejection of it as an express term.

22

Thirdly, Mr Cox submitted that, even if, as a matter of construction, the redundancy policy was apt for a contractual
term, it was too uncertain to have such effect because of the absence from it of any formula for calculation of the
payment. As I have mentioned, he maintained that Mr Keeley's reliance on Fosroc's seeming admission in
paragraph 10 of the defence of the claimed formula was misconceived because it was not an admission and that,
even if it was, it was simply an error on the part of the pleader, as paragraph 11(d) of defence indicated (see
paragraph 13 above). He added that, in any event, the admission was insufficient because the pleaded claim,
neither in its identification of the formula nor otherwise, dealt with other relevant matters such as the length of
service cap or the position of those approaching retirement.

23

As to the Horkulak point, Mr Cox maintained that it did not assist Mr Keeley because in that case it was common
ground that the provision in question was contractual in nature, albeit that it left the employer with a discretion how
to implement it; here, by contrast, there were reasons in addition to uncertainty why the enhanced redundancy
payment provision could have no contractual force.

24
Conclusions'Anterior fact'

I deal first with Mr Cox's contention that the judge, in

[*966]

considering and determining whether the enhanced redundancy payment provision was an express term of Mr
Keeley's contract of employment, was not construing a contract but, one of anterior fact, namely considering part of
a document in its over-all context to determine whether it was a contract at all. He relied, as I have said, on Air
Great Lakes and Carmichael, and also the gloss on them and other authorities in Chitty on Contracts, 9th edn,
principally at 2–176–2–179, 12–095–12–098, indicating that where there is an issue of fact whether a written
document contains all the express terms of a contract, parol evidence may be admitted to resolve the issue.
Resolution of such an issue turns on the objective intention of the parties, which may be determined from other
documents and/or oral exchanges and conduct of the parties.

25

Both Air Great Lakes and Carmichael, from which that central proposition in the passages in Chitty was principally
drawn, are distinguishable from this case in two main respects. First, in both of them the issue was whether the
documentary material claimed to constitute the contract, looked at on its own, created a contractual relationship at
all, not, as here, as to the construction of a term included in an admitted contract. Secondly, the documentary
material before the court in each case was not in the form of a contractual instrument, as here, on the face of it
containing the entirety of the material terms of the contract.

26
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

In Air Great Lakes, the Court of Appeal of New South Wales held by a majority that, where a contract is alleged to
be expressed in a document contemplating agreement of further terms, a court may have regard to extraneous
evidence of surrounding circumstances for the purpose of determining objectively as a matter of fact whether the
parties intended to enter into contractual relations.

27

In Carmichael an exchange of letters offering and accepting employment 'on a casual as required basis' was held
not be an exclusive record of the parties' agreement, and that, therefore, it was permissible to determine as a
matter of fact from other evidence of what the parties said and did at the time and subsequently whether there was
objectively an intention to enter into a contract of employment. Lord Hoffmann, agreeing with Lord Irvine of Lairg
LC, with both of whom the other Law Lords agreed, held that extraneous evidence could be admissible to establish
objectively the fact of the intention of the parties, where the first instance tribunal is satisfied that the document or
documents relied upon do not constitute the entirety of the contact.

28

It appears that in Carmichael, their Lordships contemplated that a fact-finding tribunal is entitled to look at the
extraneous material de bene esse in order to enable it to determine objectively as a primary fact whether the
documents relied upon were intended to constitute the entirety of the contract and, if not, then to go on to make a
further finding of fact as to whether the documentary material supplemented or qualified by the extraneous material
constituted a contract of employment. In that case, as I have said, the documentary material relied upon by the
claimants was an exchange of correspondence not approaching a rehearsal of the 'irreducible minimum of mutual
obligation necessary to create a contract of service' (see Nethermere (St Neots) Ltd v Gardiner [1984] IRLR 240,
per Stephenson LJ at 245 and Clark v Oxfordshire Health Authority [1998] IRLR 125, per Sir Christopher Slade at
128). This is how Lord Irvine put it at 45:
'If this appeal turned exclusively – and in my judgment it does not – on the true meaning and effect of the documentation ...
then I would hold as a matter of construction that no obligation on the ... [employer] to provide casual work, nor on ...[the
employees] to undertake it, was imposed. There would therefore be an absence of that irreducible minimum of mutual
obligation necessary to create a contract of service (Nethermere ... and Clark ...

... it would only be appropriate to determine the issue in these cases solely by reference to the documents ... if it appeared
from their own terms and/or from what the parties said or did then, or subsequently, that they intended them to constitute an
exclusive memorial of their relationship. The industrial tribunal must be taken to have decided that they were not so
intended but constituted one, albeit important, relevant source of material from which they were entitled to infer the parties'
true intention, along with the other objective inferences which could reasonably be drawn from what the parties said and did
... [at the time] and subsequently.'

29

The difficulty with the 'anterior fact' argument of Mr Cox in the circumstances of this case is that it cannot stand with
the terms of the two documents read together. This is not a case where Fosroc maintains that the documents do
not contain the whole agreement, certainly in relation to an enhanced redundancy payment. Fosroc has not
suggested any express terms additional to that in the staff handbook as to its payment or non payment. Its case is
that one of the terms does not have the contractual effect that it is expressed to have, and it seeks to support such
a case in part by reference to inadmissible evidence of the parties' subjective intentions. But, to respond to that
case in general terms, where document A, acknowledged to have contractual effect, expressly incorporates by
reference document B, and there are no other candidates for contractual contribution to the agreement, the
construction of a particular provision in document B does not become a fact-finding exercise on the strength of
extraneous evidence as to the true intention of the parties, any more than it would have done if the provision had
originally appeared in document A. It simply becomes a matter of construction of the two documents read together.
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

30

In my view, the issue or issues for the judge were essentially ones of construction of an acknowledged contract, the
written terms of which were not in issue, only in the instance of this provision its effect. The variously expressed
views on both sides from time to time in the formulation and application of the provision are not, in my view,
admissible on that issue. They are potentially relevant and admissible only in the event of the failure of Mr Keeley's
case on construction of the express term, driving him to rely on his alternative case based on an implied term – or if
Fosroc had pleaded some form of estoppel, which it has not.

124.7

31
Construction

On the question of construction, as Mr Brennan acknowledged, where a contract of employment expressly

incorporates an instrument such as a collective agreement or staff handbook, it does not necessarily follow that all
the provisions in that instrument or document are apt to be terms of the contract. For example, some provisions,
read in their context, may be declarations of an aspiration or policy falling short of a contractual undertaking; see eg
Alexander and others v Standard Telephones and Cables Ltd (No.2) [1991] IRLR 286, per Hobhouse J, as he then
was, at paragraph 31; and Kaur v MG Rover Group Ltd [2005] IRLR 40, CA, per Keene LJ, with whom Brooke and
Jonathan Parker LJJ agreed, at paragraphs 9, 31 and 32. It is necessary to consider in their respective contexts the
incorporating words and the provision in question incorporated by them.

32

In Alexander, the issue was whether the primary contract, in expressly incorporating the provisions of a collective
agreement, included a provision in that agreement as to the procedure for selection for redundancy, breach of
which entitled the claimants to damages for wrongful dismissal by reason of redundancy. Hobhouse J, in the
passage at paragraph 31 of his judgment, (applied by this Court in Kaur at paragraphs 31 and 32), sum-
[*967]

marised the appropriate principles:

'... The relevant contract is that between the individual employee and his employer; it is the contractual intention of those
two parties which must be ascertained. In so far as that intention is to be found in a written document, that document must
be construed on ordinary contractual principles. In so far as there is no such document or that document is not complete or
conclusive, their contractual intention has to be ascertained by inference from the other available material including
collective agreements. The fact that another document is not itself contractual does not prevent it from being incorporated
into the contract if that intention is shown as between the employer and the individual employees. Where a document is
expressly incorporated by general words it is still necessary to consider, in conjunction with words of incorporation, whether
any particular part of that document is apt to be a term of the contract; if it is inapt, the correct construction of the contract
may be that it is not a term of the contract. Where it is not a case of express incorporation, but a matter of inferring the
contractual intent, the character of the document and the relevant part of it and whether it is apt to form part of the individual
contract is central to the decision whether or not the inference should be drawn.'
124.7

33

Equally, here, the fact that the staff handbook was presented as a collection of 'policies' does not preclude their
having contractual effect if, by their nature and language they are apt to be contractual terms, as clearly many were
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

in the 'Employee benefits and rights' part of the handbook, incorporating in that way by reference what was not
expressly referred to or detailed in the statement of employment terms.

124.7

34

Highly relevant, in any consideration, contextual or otherwise, of an 'incorporated' provision in an employment

contract, is the importance of the provision to the over-all bargain, here, the employee's remuneration package –
what he undertook to work for. A provision of that sort, even if couched in terms of information or explanation, or
expressed in discretionary terms, may be still be apt for construction as a term of his contract (providing it is not in
conflict with other contractual provisions); see eg Horkulak; and cf. Briscoe v Lubrizol [2002] IRLR 607, per Potter
LJ at paragraph 14, as he then was, and with whom on this point Ward LJ and Bodey J agreed. Provision for
redundancy, notwithstanding statutory entitlement, is now a widely accepted feature of an employee's remuneration
package and as such, is particularly apt for incorporation by reference, as the judge recognised in the following
passage in paragraph 45 of his judgment:
'The payment of enhanced redundancy payments was a well-known fact of employment life in the group and, given the
frequency with which redundancy exercises were conducted, clearly an important factor in particular to higher-paid and
longer-serving employees.'.
124.7

35

Equally, if not more important, is the wording of a provision under question in an incorporated document containing
contractual terms. If put in clear terms of entitlement, it may have a life of its own, not to be snubbed out by context
immediate or distant in the document of which it forms part. Where the wording of the provision, read on its own, is
clearly of a contractual nature and not contradicted by any other provision in the documentary material constituting
the contract, context is not all.

36

With respect, the judge, in paragraph 50 of his judgment (see paragraph 16 above), seems to have overlooked, or
given insufficient weight to this fundamental starting point in considering the aptness of the enhanced redundancy
payment provision in its own right to be a contractual term. If apt by the nature of the subject-matter and on its own
wording, there was no doubt that it was incorporated by reference, along with other provisions in the staff handbook
that were similarly apt. As Dyson LJ noted in the course of Mr Brennan's submissions, a good way of testing
Fosroc's case and the judge's reasoning on construction, is to ask whether, and subject to the issue of certainty, if
the redundancy policy had been set out in identical terms in Mr Keeley's statement of employment terms, it could
seriously have been argued as a matter of construction that it was not apt for a contractual term and, on that
account, not part of the contract.

37

The judge's starting point in paragraph 50, after acknowledging that the provision was 'expressed as a statement of
the entitlement of the employee', was to move straight to the context, and to do so too narrowly and also
inaccurately, by observing that '[f]ew, if any, of the other parts of the section on redundancy would be apt for
incorporation into individual contracts of employment'. He then concluded the matter without more by saying '...
[a]lthough the word 'entitlement' is expressly used, the whole provision must take its colour from the context'. What
context? Quite apart from his mistaken dismissal of the redundancy section as devoid of any contextual support, he
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

seemingly did not consider or refer to the many provisions in the wider context of the staff handbook, in particular, in
the 'employee benefits and rights' part in which the 'redundancy' section was located, which were clearly apt for
contractual terms. Nor did he explain why such context as that to which he did refer, overrode the plain words of
entitlement in the provision itself. In addition, for the judge to pray in aid on this issue in paragraph 50 the absence
of identification of any payment terms, stands ill with his reasoning two paragraphs later, at paragraph 52 (see
paragraph 17 above), that lack of an express formula for calculation of the payment would not of itself have
defeated the claim.

124.7

38

In my view, the enhanced redundancy payment provision, in its language of entitlement and in its inclusion in the
'employee benefits and rights' part of the staff handbook, are strong pointers that it was intended to have
contractual effect. As to the other sections in that part of the staff handbook, for example those providing
entitlements in respect of annual leave, parental leave and paternity leave, they too are part of the context in which
the entitlement in the redundancy section fall to be considered. And, as I have pointed out, in the redundancy
section itself, the provisions for paid time off to look for work elsewhere and the right to appeal against dismissal are
close supporting context for concluding that statements of entitlement in that section were intended to have
contractual effect. Such matters were clearly to be treated differently from the quite distinct procedural, aspirational
or discretionary matters in the section going to the selection of employees for redundancy. There was no issue as to
Mr Keeley's redundancy or as to his entitlement, in consequence, to statutory redundancy pay, nor as to the
calculation of an enhanced redundancy payment if contractually due to him. In the circumstances, the reliance by
Mr Cox on the judge's perception that 'few, if any, of the other parts of the section on redundancy would be apt for
incorporation into individual contracts of employment' is not to the point.

124.7

39
Uncertainty as to formula

I consider that, for the reasons given by the judge in paragraph 52 of his judgment (see paragraph 17 above), once
the Court is satisfied as a matter of construction, that the enhanced redundancy payment provision is apt for a
contractual term, there is no problem of uncertainty in relation to its calculation from time to time and on a case by
case basis. The provision, in its use of the expression 'enhanced redundancy payment' identifies by reference the
means by which, when such payments fall to be
[*968]

paid, they are calculable, as demonstrated by Fosroc's acknowledgement in its defence of the formula finally relied
upon by Mr Keeley.

40

Even if, which is not contended by Fosroc, the formula and/or amount when paid were entirely a matter for its
discretion, Horkulak shows how far the courts will go to give practical effect to the reality of the bargain struck
between employer and employee in an exchange of reward for labour, as a matter of construction of express terms
or by way of implication. In that case, the issue turned on the effect of an express contractual provision for a
discretionary loyalty bonus, the amount of which was to be agreed between the employer and the employee. The
employer maintained that, as the contract expressly provided for payment as a matter of discretion and not of
entitlement, the employer had no obligation to pay or even consider paying it. The Court held, not only that the
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

provision should be read as providing a contractual benefit to the employee, but also, notwithstanding the lack of
any expressed formula or point of reference for its calculation, as obliging the employer to assess rationally and
fairly, and to pay, a sum due to the employee under the provision. In the case before us, as Mr Brennan observed,
the claim, based on an entitlement by reference to an acknowledged formula, is much stronger.

41

The fact that the enhanced redundancy payment provision is incorporated in the statement of employment terms,
the primary contractual document, by reference rather than set out in it, and that the formula may change from time
to time are not arguments against contractual effect. They are in favour of it, where the machinery, as here, by
express reference in the staff handbook to 'an enhanced redundancy payment', identifies and enables recourse to
the formula in force at the time when the need to calculate each such payment arises. As Potter LJ observed in
Briscoe, at paragraph 14, frequently in the employment context, the language of a handbook, even if (unlike this
case) couched in terms of information and explanation, will be construed as giving rise to binding obligations
between employer and employee:
'14. ... It is of course frequently the case that details of an employee's contract and the benefit to which he is entitled by
virtue of his employment are largely to be found in a handbook ... For this purpose, and depending upon the circumstances,
incorporation by express reference in the statutory particulars of employment will not usually be required by the court.
Again, it is frequently the case that, in the employment context, the language of a handbook, while couched in terms of
information and explanation, will be construed as giving rise to binding legal obligations as between employer and
employee ...'
124.7

42

The enhanced redundancy provision, in its use of the word 'entitled' and in its location in the 'Employee benefits and
rights' part of the staff handbook, clearly refers to a legal right. Although it is conditional on its 'details' being found
elsewhere, the irreducible minimum of them, as I have said, is to be found in Fosroc's admission in its defence of
the formula on which Mr Keeley finally relied. The issue is enhanced payment or no – all or nothing. Thus, whatever
the economic uncertainties facing large employers militating against a conclusion that they would bind themselves
irrevocably to a specific formula for calculation or amount of redundancy payment, the machinery of contract may,
as here, provide a safety valve in enabling those matters to be resolved on an individual basis from time to time by
reference to an identifiable process, as it did here in the use of the term 'an enhanced redundancy payment'.

124.7

43

Accordingly, I am of the view that, on the primary case of Mr Keeley in reliance on an express term: (1) the issue for
the judge and this Court was purely one of construction of Mr Keeley's statement of employment terms and the staff
handbook, in particular, the enhanced redundancy payment provision, when read together, not one of fact as to
whether the parties, in respect of that provision, intended to enter into contractual relations; (2) as a matter of
construction, the enhanced redundancy payment provision was apt to be a contractual term; and (3) as part of that
conclusion, the enhanced redundancy payment provision was not vitiated by uncertainty, since it identified the
means of reference by which the appropriate payment would be calculable when the time came.

44
 KEELEY (appellant) v. FOSROC INTERNATIONAL LTD (respondents) [2006] IRLR 961, [2006] IRLR 961

Accordingly, I do not consider it necessary to go on to consider Mr Keeley's alternative claim based on a term to be
implied from custom and practice, and would allow his appeal.

45

LORD JUSTICE DYSON: I agree.

46

SIR MARTIN NOURSE: I also agree.

Note

1 A provision for which there is some statutory under-pinning.

End of Document