England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE EATRF 98/013203

(MORISON J )

Royal Courts of Justice

Strand

London WC2A 2LL

Friday 12 February 1999

B e f o r e:

THE MASTER OF THE ROLLS

(LORD WOOLF)

LORD JUSTICE PETER GIBSON

LORD JUSTICE MANTELL

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THE SECRETARY OF STATE FOR TRADE AND INDUSTRY

Plaintiffs/Appellants

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PETER BOTTRILL

Defendant/Respondent

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(Transcript of the Handed-Down Judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MISS J EADY (Instructed by The Treasury Solicitor, London, SW1H 9JS) appeared on behalf of the Appellant

MR M BARKLEM (Instructed by Messrs Shulmans, Leeds, LS1 2EX)

appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court)

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©Crown Copyright

Friday 12 February 1999

JUDGMENT

LORD WOOLF, MR:

This is the judgment of the Court.

There is only one issue on this appeal. It is whether a person who is a controlling shareholder of a company can also be an employee of that company for the purposes of the Employment Rights Act 1996 (“ERA”). It is an issue on which there have been conflicting previous decisions. In Buchan and Ivey v Secretary of State for Employment [1997] IRLR 80, the Employment Appeal Tribunal, in a judgment given by Mummery J, the President, decided that a controlling shareholder could not be an employee for that purpose. In Fleming v Secretary of State for Trade and Industry [1997] 1 IRLR 682, the Inner House of the Court of Session (The Lord President [Lord Rodger], Lord Kirkwood and Lord Coulsfield) did not apply Buchan and Ivey and decided that a controlling shareholder could be an employee. Whether he was an employee or not depended on all the circumstances. A similar view to that taken in the Inner House was taken by the Employment Appeal Tribunal in this case, the judgment being given by Morison J, the President.

The significance of the issue is that if the controlling shareholder is an employee, then upon any of the conditions specified in s.166(7) being satisfied (broadly speaking on insolvency), as an employee, the controlling shareholder is entitled to recover certain sums, which would otherwise be owing from the company, from the Secretary of State in accordance with the provisions of the ERA including statutory redundancy payments (s.166), unpaid wages and holiday pay and monies in lieu of notice, the basic award of compensation in respect of unfair dismissal and other payments, including protective awards, and monies due for time taken off work for trade union duties, etc. (s.184).

The facts giving rise to the appeal can be summarised fairly shortly. The respondent, Peter Bottrill, became Managing Director of Magnatech UK Limited (“Magnatech”) on 25 March 1994. There was one other director and two other individuals were employees. The one share of the company which was issued was held by Mr Bottrill. It was, however, intended in the future that an American group, which supplied Magnatech with all items for sale, would hold 80% of the shares in the company. A draft shareholders’ agreement describing the proposed relationship between the group and Magnatech had been prepared. However, before the agreement was executed, Magnatech became insolvent. At that time Mr Bottrill was still the sole shareholder.

Mr Bottrill had signed a “contract of employment” on 15 August 1994. This was for a term of 3 years and set out his duties, his working hours, his entitlement to remuneration (which was reviewable on an annual basis and would be set at a level mutually agreed with fellow directors), holiday and sick pay. He worked the hours indicated in the contract and had no employment elsewhere. As a result of the insolvency of the company, a Receiver was appointed, Mr Bottrill became redundant and he was dismissed with effect on 19 April 1996. Certain sums were then owed to him by the company, which he was entitled to recover from the Secretary of State, if Mr Bottrill was an employee for the purposes of the ERA.

Mr Bottrill applied to the Department of Trade and Industry for a redundancy payment from the National Insurance Fund. This was rejected on the ground that he was not an employee. He applied to an Industrial Tribunal and on 13 December 1996, the Tribunal came to the conclusion that he was an employee of the company and entitled to payment from the Secretary of State. On the appeal to the Employment Appeal Tribunal, it upheld the determination of the Industrial Tribunal. The Employment Appeal Tribunal gave leave to appeal to this Court.

The Industrial Tribunal when giving its reasons for its decision, relied on its findings that Mr Bottrill’s status as sole shareholder was only temporary and any control which he had of the company was only theoretical. The actual control was held by the American group. The Industrial Tribunal laid stress on the facts that Mr Bottrill had paid National Insurance Contributions and tax as if he was an employee, was entitled to sick pay, worked fixed hours and had a contract with Magnatech that was described as a contract of employment.

Turning to the relevant provisions of the ERA:

“[S]166 Applications for payments

(1) Where an employee claims that his employer is liable to pay to him an employer’s payment and either

(a) that the employer has taken all reasonable steps, other than legal proceedings, to recover the payment from the employer and the employer has refused or failed to pay it, or has paid part of it and has refused or failed to pay the balance, or

(b) that the employer is insolvent and the whole or part of the payment remains unpaid,

the employee may apply to the Secretary of State for a payment under this section.

(2) In this Part ‘employer’s payment’, in relation to an employee, means -

(a) a redundancy payment which his employer is liable to pay to him under this Part,

[(aa) a payment which his employer is liable to make to him under an agreement to refrain from instituting or continuing proceedings for a contravention or alleged contravention of section 135 which has effect by virtue of section 203(2)(e) or (f), or]

(b) a payment which his employer is, under an agreement in respect of which an order is in force under section 157, liable to make to him on the termination of his contract of employment.

....

(4) In subsection (1)(a) ‘legal proceedings’

(a) does not include any proceedings before an industrial tribunal, but

(b) includes any proceedings to enforce a decision or award of an industrial tribunal.

(5) An employer is insolvent for the purposes of subsection (1)(b) -

(a) where the employer is an individual, if (but only if) subsection (6) is satisfied, and

(b) where the employer is a company, if (but only if) subsection (7) is satisfied

.....

(7) This subsection is satisfied in the case of an employer which is a company -

(a) if a winding up order or an administration order has been made, or a resolution for voluntary winding up has been passed, with respect to the company,

(b) if a receiver or (in England and Wales only) a manager of the company’s undertaking has been duly appointed, or (in England and Wales only) possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge, or

(c) if a voluntary arrangement proposed in the case of the company for the purposes of Part I of the Insolvency Act 1986 has been approved under that Part of that Act.

182 Employee’s rights on insolvency of employer

If, on an application made to him in writing by an employee, the Secretary of State is satisfied that -

(a) the employee’s employer has become insolvent,

(b) the employee’s employment has been terminated, and

(c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies,

the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt.

183 Insolvency

(1) An employer has become insolvent for the purposes of this Part -

....

(b) where the employer is a company, if (but only if) subsection (3) is satisfied.

(3) This subsection is satisfied in the case of an employer which is a company

(a) if a winding up order or an administration order has been made, or a resolution for voluntary winding up has been passed, with respect to the company,

(b) if a receiver or (in England and Wales only) a manager of the company’s undertaking has been duly appointed, or (in England and Wales only) possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge, or

(c) if a voluntary arrangement proposed in the case of the company for the purposes of Part I of the Insolvency Act 1986 has been approved under that Part of that Act.

188 Complaints to industrial tribunals

(1) A person who has applied for a payment under section 182 may present a complaint to an industrial tribunal -

(a) that the Secretary of State has failed to make any such payment...

(3) Where an industrial tribunal finds that the Secretary of State ought to make a payment under section 182, the tribunal shall -

(a) make a declaration to that effect, and

(b) declare the amount of any such payment which it finds the Secretary of State ought to make.

230 Employees, workers etc

(1) In this Act “employee” means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing).

It will be noted that the definition in section 230 does not attach any special meaning to the term employee other than that there should be or have been a contract of employment, which is a normal incident of employment generally.

In her very clear submissions on behalf of the Secretary of State, Miss Jennifer Eady submits as follows:

(1) Whatever his position for other purposes, an individual who holds the sole or controlling shareholding in a limited company is not to be regarded as an employee for the purposes of the sections of the ERA already referred to.

(2) De facto economic or commercial control of the company is not relevant to the question of employment status.

(3) The relevant date for determining whether or not the Secretary of State is liable to make payments from the National Insurance Fund to employees of an insolvent company is that provided by the ERA. It is not for the Tribunal to look at some future or hypothetical circumstances to determine employment status.

She naturally relied upon the reasoning of the Employment Appeal Tribunal set out in the decision by Mummery P in Buchan and Ivey. In those cases Mr Buchan had held 50% of the shares of his company and Mr Ivey 98% of the shares of his company. The reasoning of Mummery P should be cited in full. He stated (paras. 9-12 at p.82):

"The controlling shareholder

The application of the legal propositions summarised above to the facts of a particular case may produce a different legal result according to whether or not the claimant has a controlling shareholding in the company. If the claimant is able, by reason of a beneficial interest in the shares of the company, to prevent his dismissal from his position in the company, he is outside the class of persons intended to be protected by the provisions of the 1978 Act and is not an employee within the meaning of that Act. The critical provisions of the 1978 Act give legal protection to a person against being dismissed unfairly, including dismissal for redundancy on the insolvency of an employer, and for guaranteed State payments for employees in that event. A controlling shareholder can prevent the company from dismissing him from his position. It would be inconsistent with the purposes of the 1978 Act to extend protection to a person who cannot be dismissed from his position in a company without his agreement. This result conforms both to common sense and to the industrial or commercial realities of the situation. It is, however, common for submissions to be made on behalf of a controlling shareholder in support of the proposition that he is an employee of a company. Those submissions are most frequently based on the decision of the Judicial Committee of the Privy Council in Lee v Lee’s Air Farming Ltd [1961] AC 12. That case is relied on for the proposition that a shareholder, with full and unrestricted control over all the operations of the company, is employed under a contract of service with the company if he works for it full time.

In our judgment, that argument ignores the context in which Lee’s case was decided. Reliance upon that case is misplaced optimism in the context of employment protection. In the Lee case a claim was made by a widow for compensation under the New Zealand Workers’ Compensation Act 1992 arising out of the death of her husband as a result of an accident in the course of his employment by the company of which he was governing director and controlling shareholder. The company was insured against the payment of compensation in the case of an accident to him in the course of employment. The judicial committee held that Mr Lee was a ‘worker’ employed by the company with whom he had entered into, and who worked under, a contract of service. The judicial committee rejected the proposition that this was a legal impossibility because he controlled the company. The reasoning of the judicial committee was that the company, though under Mr Lee’s control, was a separate and distinct legal entity with which he could enter into a valid contract of service, that the company could give orders to him, and that he could function in a dual capacity, acting in one capacity as the person who gave orders to himself in another capacity.

The decision does not mean that there will always be a contract of service in such circumstances. It all depends on the context. That was a case of a claim for compensation. The purpose of the insurance arrangements covering employees of the company was to provide compensation for a dependant, such as a widow, in the event of an accident to an employee. That purpose would be defeated if it were held that Mr Lee was not a worker under a contract of service. The liability to pay compensation could not be avoided by an attack on the validity of the contractual relations between Mr Lee and the company (which was not suggested to be a sham). His position as a controlling shareholder did not make it impossible in those circumstances for his wife to satisfy the conditions for the payment of compensation under the insurance arrangement.

The issue in this case arises in the context of employment protection legislation. Taking the facts of Mr Lee’s case, it is difficult, in an employment protection context, to conceive of circumstances in which Mr Lee could have been regarded as an employee of the company for the purposes of making a claim against the company for a redundancy payment or for unfair or wrongful dismissal. None of those events could give rise to any remedy by him against the company, because the wrong of which he would complain could not occur without his concurrence. That feature would also affect the position of a guarantor of a liability of the company, such as the Secretary of State in relation to redundancy and other payments. The liability of the Secretary of State is to make a payment which the insolvent employer is liable to make, but cannot make because of lack of funds. If a person has no remedy against the company over which he exercises control, he cannot have any claim against the guarantor of the company’s liability."

Mummery P continued (at para. 34 at p.84) in relation to Mr Buchan:

"The tribunal were entitled, on the material before them, to conclude that Mr Buchan was not an employee of the company but was, through the company, running his own business enterprise. As beneficial owner of 50% of the shares in the company he was able to block any decision by the board or of the company at a general meeting with which he did not agree, including a decision as to his own dismissal or terms of service. In other words, Mr Buchan’s agreement was necessary before he could be dismissed summarily or on notice. If he did agree to a decision to dismiss him, then that would not be a ‘dismissal’ within the meaning of the 1978 Act. It would be a case of what is sometimes called ‘self-dismissal’. The intervention of the administrative receiver did not and could not alter Mr Buchan’s legal status vis-a-vis the company. The appointment of the receiver and the receiver’s views on the employment status of Mr Buchan are not, in our view, relevant to the determination of the issue whether Mr Buchan was an employee of the company. If Mr Buchan was not an employee before the receivers were appointed, he would not become an employee by reason of that appointment. The control taken by the receiver is over the assets of the company and he acts in place of the directors. That event is not relevant to the issue whether or not the director had or had not been an employee of the company."

Turning to Mr Ivey’s case Mummery P said (at para 35 at p.84):

"In our judgment, there is no error of law in the decision of the industrial tribunal that Mr Ivey was not an employee of the company. As in the case of Mr Buchan, the industrial tribunal were entitled, on the material before them, to conclude that Mr Ivey was not an employee. In reaching that conclusion the tribunal did not apply the wrong legal test or adopt the wrong legal approach."

The decision in Buchan and Ivey was cited to the Inner House in Fleming. In that case Mr Fleming was the Managing Director of the company of which he held 65% of the shares. He worked alongside other employees and had the same hours of work and had no other employment. He was paid under the PAYE system. The company went into liquidation and the Secretary of State refused his claims on the grounds that he was not an employee of the company. That decision was upheld by an Industrial Tribunal. The Employment Appeal Tribunal upheld that decision. In giving the reasons of the Inner House for dismissing the further appeal to it, Lord Coulsfield regarded the fact that Mr Fleming was a majority shareholder as being a relevant and important factor in determining whether or not employment existed but was not prepared to accept that it was decisive. In the course of his judgment he said:

"We agree that it is well established that the question whether or not a person is an employee is a question of fact to be decided by the industrial tribunal and that neither the Employment Appeal Tribunal nor this court is entitled to interfere unless the industrial tribunal has in some way misdirected itself or arrived at a conclusion which cannot reasonably be supported."

(para. 9 at p.684)

Later (at para. 10) he added:

"In reaching the above conclusion, we have treated the fact that the appellant held a majority shareholding in the company as a relevant factor. We do not see how it could, in common sense, be doubted that the fact that a person is a shareholder is a relevant factor. The significance of that factor will depend on the circumstances, and the weight to be given to it may vary with the size of the shareholding. It is true that, as the appellant pointed out, a change in the size of a shareholding might, on that view, lead to a change in the view taken of the status of a particular person. The decision as to whether a person is or is not an employee must, however, be taken on all the relevant factors at the material time. The shareholding position at the material time must, in our view, be a relevant factor. It will, however, usually only be one of a number of such factors, and it is not impossible that regard might be had to the way in which the person in question comes to be a shareholder, or to be a majority shareholder. As in any such decision, all the circumstances have to be considered."

Having referred (at para. 11) to the decision of Mummery P. in Buchan and Ivey , which he regarded as coming “very near to asserting the existence of a rule of law, if they do not quite reach that point,” Lord Coulsfield stated (at paras. 12 and 13 on pp. 684,5):

"As we have indicated, the argument which we have heard in the present case is limited and we did not have the assistance of submissions from a legal representative on behalf of the appellant. In these circumstances we would not wish to go too far in expressing any opinion. Nevertheless, we can say that in view of the long-standing rule, to which we have referred, that the question whether or not a person is an employee is a question of fact, we would be reluctant to see the introduction of any purported rule of law into this area of decision. We note in particular that in Buchan some reliance is placed on the proposition that a controlling shareholder can prevent the company from dismissing him. We are uncertain how that factor would apply in a case like the present, where it was the liquidator who dismissed the appellant. We did not hear argument on that matter, however, and we need express no view on it. It can easily be seen, as we have said, that the fact that the claimant is a majority shareholder is always a relevant factor. Normally it will be an important factor and there may well be cases in which it is decisive. We are not, however, convinced that it would be proper to lay down any rule of law to the effect that the fact that a person is a majority shareholder necessarily and in all circumstances implies that that person cannot be regarded as an employee, for the purposes of the employment protection legislation.

In all the circumstances, however, we shall dismiss this appeal."

Although there are other authorities to which it is possible to refer, the only other decision from which it is necessary to cite is the decision of the Employment Appeal Tribunal in this case. In the course of his judgment Morison P referred to the decision of the Privy Council in Lee v Chung Chi-Keung [1991] ICR 409, which, for purposes other than the ERA, made it clear that the fact that a person’s shareholding in a company meant he could “control the course of events would not in itself affect the validity of his contractual relationship with the company”. Morison P commented:

"Here it can be said the applicant entered into what must be accepted as a genuine contract made between himself as managing director and the company, Magnatech UK Ltd. That contract would have survived him ceasing to be a director, or any change in his shareholding. The performance of his duties was for the company’s benefit who stood to profit from the value of the service he rendered to the company. If the company cannot, as it cannot, be dismissed as a mere simulacrum, and if the contract was not a sham then the contract must be categorised as either a contract of service or for services. There is nothing in the statute which says that ‘one man companies’ [a ‘nickname’ which does not much help the reasoning process] fall into some kind of special category."

Subsequently he added:

"in very many cases where a company has gone into liquidation, the Directors could be said to have mismanaged the company and to have brought about the very event which triggered their entitlement to a claim against the Secretary of State. It cannot be suggested that any such person who can be identified as being the author of his own misfortune loses his statutory rights. An Industrial Tribunal is not required to assess fault. Further as we understand the decision in Buchan & Ivey , and was accepted in argument, Mr Bottrill’s status as an employee would depend on him continuing to hold the majority of the issued share capital. In other words, if he had transferred his share to Mr Wilson, who had hitherto been an employee director, Mr Bottrill would become an employee and Mr Wilson would cease to be one. It seems to us unlikely that the status of a contractual relationship should change in this way. Again, if Mr Bottrill entered into an agreement to vote his share in accordance with the directions of a third party, such as a creditor of the company, it might appear that he no longer had control over his own destiny, and, presumably, would then become an employee. If Industrial Tribunals are to apply the Buchan & Ivey decision they will, presumably need to inquire into the claimant’s rights to the shares to ascertain who is the true beneficial owner of them [or it, as the case might be]."

Morison P went on to indicate that in the Employment Appeal Tribunal’s view it was unlikely that a controlling shareholder would in anticipation of insolvency deliberately not pay himself wages or holiday pay because he knows he can claim them against the Secretary of State. However, he went on to say that:

"If, otherwise than in the normal course of business, a director tried to organise affairs so that the Secretary of State became liable, the Tribunal would probably be able to deny his claim on the basis that it was not truly a debt owed by the company to him either because he had ‘given the company time to pay’ or because it was not truly owing at the date of the insolvency. It is unlikely, we think, that such a controlling director can, through the use of his own power, procure a liability which would not otherwise exist to any greater extent than a director who has no such control. It is inherently unlikely that he can deliberately procure a liability to pay wages to himself."

The President then referred to the decision in Fleming and indicated that fortified by that judgment the Employment Appeal Tribunal regarded the decision in Buchan and Ivey as being unsound. The President concluded by saying:

"The higher courts have taken the view that the issue as to whether a person is or is not an employee is a pure question of fact. The shareholding of a person in the company by which he alleges he was employed is a factor to be taken into account, because it might tend to establish either that the company was a mere simulacrum or that the contract under scrutiny was a sham. In our judgment it would be wrong to say that a controlling shareholder who, as such, ultimately had the power to prevent his own dismissal by voting his shares to replace the board, was outside the class of persons given rights under the Act on an insolvency."

Of the two approaches, we have no hesitation in preferring the approach of the Employment Appeal Tribunal in this case and that of the Inner House in Fleming.

As we understand the reasoning in Buchan and Ivey , it is the ability of the shareholder to prevent his dismissal which is crucial and that in turn depends on his ability to use his voting rights to that end. Whilst reference is made by Mummery P to a "controlling shareholding", it would appear from the facts of Mr. Buchan's case that a 50% shareholding would be sufficient to constitute what otherwise would be a contract of employment a contract of some other character. Why this should be so is not immediately apparent. Shareholders in general do not have the right to interfere with management decisions save pursuant to resolutions passed in general meeting. But by then the dismissal may have occurred. If Mr. Buchan's fellow director had been the chairman at a board meeting with a casting vote, he could have dismissed Mr. Buchan, and even if Mr. Buchan sought at a general meeting to procure his reinstatement, his 50% shareholding would not give him the ability to achieve that result. Even Mr. Bottrill with the only issued share could in certain circumstances have been dismissed by Magnatech acting by its other director. Miss Eady, when pressed with this, changed the test to being whether the shareholder employee, if dismissed, could procure reinstatement. We mention this simply as an example of the difficulties which arise if the court seeks to imply into the definition of "employee" tests which Parliament has not seen fit to express. Further, as Mummery P accepted through his attempted distinguishing of Lee v Lee's Air Farming Ltd ., the term "employee" would be given a special meaning for the employment protection legislation which it does not have in other contexts or indeed under the general law. For the reasons given by Morison P which we find cogent the difference in context between Lee's case and a case under the ERA does not justify the difference in result. The gloss sought to be given by Mummery P to "employee" in the ERA, based as it is on the ability of the controlling shareholder to prevent his dismissal, is all the more surprising when applied to a case such as the present when Mr. Bottrill was powerless to prevent his actual dismissal which triggered his claim.

We recognise the attractions of having in relation to the ERA a simple and clear test which will determine whether a shareholder or a director is an employee for the purposes of the Act or not. However, the Act does not provide such a test and it is far from obvious what Parliament would have intended the test to be. We do not find any justification for departing from the well-established position in the law of employment generally. That is whether or not an employer or employee relationship exists can only be decided by having regard to all the relevant facts. If an individual has a controlling shareholding that is certainly a fact which is likely to be significant in all situations and in some cases it may prove to be decisive. However, it is only one of the factors which are relevant and certainly is not to be taken as determinative without considering all the relevant circumstances.

Even if it had been possible to come to a different conclusion, we are far from satisfied that could be provided by the simple test which the Employment Appeal Tribunal in Buchan and Ivey was looking for. The facts of the present case illustrate that whether or not there is a controlling shareholder may not, by any means, be clear cut. We recognise the force of the contention by Mr Barklem on behalf of Mr Bottrill that in any event on the special facts of this case, it may be possible to regard Mr Bottrill as not having a beneficial controlling shareholding. There are also the logical problems to which Morison P referred in taking a controlling shareholding as the test. During the life of a contract, such control of a company can change and it would indeed be extraordinary if this should affect the employment status of an individual during the same contract for the purpose of making claims against the Secretary of State under the ERA. Finally there is the irony that if control were to be the decisive test, it would probably only “bite” for the purposes of claims against the Secretary of State when the individual was no longer in control because of the insolvency of the company.

Both the Inner House and Morison P in their judgments made it clear that the scope for abuse is limited. We would reaffirm the views which they express as to the use of devices to seek remedies against the Secretary of State in inappropriate circumstances. However, those cases apart, it is right to note that, in a case such as this where National Insurance Contributions have been paid, to deprive an individual of his claims under the ERA could be to deprive unjustly that individual of the benefits to which he could properly expect to be entitled after he and his “employer” had made the appropriate contributions.

We agree with the Employment Appeal Tribunal that the Industrial Tribunal was entitled to conclude that there was a genuine contractual relationship between Mr. Bottrill and his company, and that the Industrial Tribunal, having carefully and properly weighed the competing factors, had arrived at a conclusion which is unimpeachable on the facts. Miss Eady expressly accepted that if she was wrong in supporting the approach in law in Buchan and Ivey , the appeal must be dismissed.

She asked us to provide what guidance we can because of the frequency with which problems of the type exemplified by this case arises. We are anxious not to lay down rigid guidelines for the factual enquiry which the tribunal of fact must undertake in the particular circumstances of each case, but we hope that the following comments may be of assistance.

The first question which the tribunal is likely to wish to consider is whether there is or has been a genuine contract between the company and the shareholder. In this context how and for what reasons the contract came into existence (for example, whether the contract was made at a time when insolvency loomed) and what each party actually did pursuant to the contract are likely to be relevant considerations.

If the tribunal concludes that the contract is not a sham, it is likely to wish to consider next whether the contract, which may well have been labelled a contract of employment, actually gave rise to an employer/employee relationship. In this context, of the various factors usually regarded as relevant (see, for example, Chitty on Contracts 27 ^th ed. (1994) para. 37-008), the degree of control exercised by the company over the shareholder employee is always important. This is not the same question as that relating to whether there is a controlling shareholding. The tribunal may think it appropriate to consider whether there are directors other than or in addition to the shareholder employee and whether the constitution of the company gives that shareholder rights such that he is in reality answerable only to himself and incapable of being dismissed. If he is a director, it may be relevant to consider whether he is able under the Articles of Association to vote on matters in which he is personally interested, such as the termination of his contract of employment. Again, the actual conduct of the parties pursuant to the terms of the contract is likely to be relevant. It is for the tribunal as an industrial jury to take all relevant factors into account in reaching its conclusion, giving such weight to them as it considers appropriate.

We would dismiss this appeal.

Order: Appeal dismissed. Appellant to pay respondent's costs on an indemnity basis. Legal Aid taxation of respondent's costs.