England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
EMPLOYMENT APPEAL TRIBUNAL
(HIS HONOUR JUDGE PETER CLARK)

		Royal Courts of Justice Strand London, WC2 Friday, 25 October 2002

1. LORD JUSTICE BROOKE: In this matter Mr Soteriou seeks permission to appeal from a decision of the Employment Appeal Tribunal of 24 May 2002 dismissing his appeal from a decision of an Employment Tribunal on 9 January 2001. That tribunal held that, contrary to the argument put forward by the respondent employers, Mr Soteriou was employed by them under a contract of service. It held, however, that the contract of service was unenforceable because it was tainted with illegality.
2. In the summer of 1986 Mr Soteriou was an independent book-keeper and accounts clerk for a firm of accountants who carried out work for the third respondent, which is a leading company in the group of respondent companies. The quality of his services appealed to Mr Brinton, the principal shareholder, and Mr Soteriou was engaged by his companies full time as a self-employed contractor. The tribunal found as a fact that this was on Mr Soteriou's insistence and Mr Brinton agreed to the suggestion because it was in both parties' interests.
3. The benefits to Mr Soteriou of self-employment was that there was generous treatment of his finances for tax purposes; he had to pay tax less frequently and he was able to claim expenses in relation to his home against VAT or tax. The tribunal referred to the expenses in relation to installing garage doors, an alarm system and building work at his home which he set off against VAT. He rendered monthly invoices in arrears and over the years his remuneration rose from £18,000 to £100,000 each year.
4. In 1996 Mr Brinton was starting negotiations for the sale of his companies but these negotiations broke down. In that context he was willing to engage Mr Soteriou under an employment contract so as to safeguard his post under the employment protection legislation. The tribunal found that it was financially immaterial to Mr Brinton whether Mr Soteriou was employed or self-employed. Terms were not negotiated. Mr Soteriou prepared a draft contract of employment, but it contained terms which Mr Brinton was not willing to accept and it was never agreed.
5. The Employment Tribunal found as a matter of mixed fact and law that by a time in 1996 which it could not pin-point, the employment relationship had changed from one of self-employed status to one of employed status. It is apparent from its later findings that they were influenced by the fact that he had an office at the company's premises, he had set hours of work, he received sick pay and holiday pay, he had a company parking space, he had a company business card, he was not able to subcontract his work to others and send along a substitute, and he had authority to sign company cheques. It is quite apparent that the tribunal concluded on the evidence, not only that this was his status, but that he was somebody who was well experienced in tax law and knew the different pointers towards employed status and self-employed status. It found that Mr Soteriou was well aware that his status was that of an employee. He had been willing to have his status as an employee set out in writing in order to safeguard his post if there was a transfer of the undertaking.
6. In November 1998 the Contributions Agency expressed interest in Mr Soteriou's true employment and started an investigation. The tribunal found that it was in both parties' interests if he could be classified as self-employed. It found that if he was not, it was on the cards that his employers would face tax penalties and interest for employer's national insurance contribution which they had not been paying because he was continuing to be treated as self-employed. It was also possible that he would face national insurance penalties. There would be a potential inquiry into whether he was wrongly registered for VAT, against which he had offset his domestic expenditure. There were potential Customs and Excise, Inland Revenue and DSS penalties so far as he was concerned.
7. The tribunal found a number of facts adverse to Mr Soteriou in relation to the inquiry by the Contributions Agency. At his suggestion, the respondents consulted a tax specialist, a member of a specialist firm of accountants. Before the meeting, with this specialist Mr Soteriou prepared an aide memoire which listed extensive features pointing to self-employed status. The tribunal robustly rejected his evidence that this specialist had coached him on what to say to the DSS to convince them of his self-employed status, although he was aware that he was an employee. The specialist gave evidence to the tribunal, clearly outraged that this suggestion had been made. The tribunal accepted this evidence and made the finding adverse to Mr Soteriou that he was giving false evidence to them.
8. Mr Brinton approved the letter that was sent by the specialist to the DSS answering questions about Mr Soteriou's status. Mr Soteriou himself made a statement to the Contributions Agency in which he claimed to be self-employed. The Employment Tribunal found that statement contained a large number of lies. Mr Nugent, who has argued Mr Soteriou's case quite admirably in this court, has observed that Mr Soteriou later quite separately admitted that he told a lot of lies to the Contributions Agency investigator, so that this was no longer in issue by the time of the Employment Tribunal proceedings.
9. The tribunal found as a fact that Mr Soteriou was a skilled professional man, well aware of the legal and tax implications of the employed/self-employed distinction. Mr Brinton, while an astute business man, did not appreciate the finer points of difference, but he had been willing to approve the letter sent to the DSS answering questions about Mr Soteriou's status.
10. The tribunal found that Mr Soteriou was the prime mover in ensuring that his self-employed status was preserved following the Contributions Agency investigation. It rejected Mr Soteriou's evidence that he was a victim of Mr Brinton's threatening and overbearing manner, or that he was forced to maintain a self-employed status for fear of losing his job. The tribunal of fact was extremely hostile to Mr Soteriou's behaviour and it was clearly satisfied that he had been willing to tell a whole series of untruths in order to protect his more favoured tax status.
11. Mr Soteriou sought permission to appeal to the Employment Appeal Tribunal. The Employment Tribunal had held that it was against public policy to allow him to come to the tribunal and try to claim benefits accorded to employees under the Employment Rights legislation.
12. The Employment Appeal Tribunal allowed the appeal to go forward on one issue only which it identified as:

"Having knowingly committed a fraud under the contract in the way Mr Soteriou had acknowledged, he cannot now come to this tribunal to pursue a legal claim based on that contract."

13. Mr Soteriou sought permission to appeal to the Court of Appeal against the Employment Appeal Tribunal's of the limitation of the issues in that way. Sedley LJ, dismissing the application, said:

"That there were illegal purposes in the contract is known and found. The question is to what extent, if at all, Mr Soteriou is tainted with those illegalities and whether therefore he should fail in his attempts to bring proceedings upon the contract."

14. The Employment Appeal Tribunal heard the appeal in May 2002. In a considered judgment of the tribunal chaired by Judge Clark, it concluded:

"Although the law in this area can be difficult, much will depend on the facts. Having heard Mr Soteriou it is clear to us that this is, in truth an appeal on fact. There is no error of law made out. The appeal fails and is dismissed."

15. Mr Soteriou sought permission to appeal to this court. Sedley LJ initially adjourned the matter into court. He considered that there was a point which needed careful consideration and the court is indebted to the Legal Services Commission and to Mr Nugent who has appeared to argue the point.
16. In his submissions Mr Nugent understandably felt bound to go back to the Employment Tribunal's initial findings. He bravely sought to submit that the tribunal had not made sufficient findings to enable it to reach its conclusion on points of law that it did reach. He drew my attention to the facts that the tribunal used this sentence:

"We conclude that the reason why Mr Soteriou told these lies to the Contributions Agency was because he knew that without them, there was at least an even chance that he would lose his self-employed status."

A little later they said:

"He volunteered to exclude himself from the Employment Protection system from the outset, he made no effort to regularise his position when it might have been argued that his status had changed, and he positively misrepresented the position to the authorities when his status was challenged."

17. Mr Nugent argued that his status was not completely watertight by the referred and well-known authority which identifies the tests which have to be applied. He said that, in those circumstances, whatever conclusion the tribunal might have reached it did not make a finding of fact. The Contributions Agency would not necessarily have reached the same conclusion.
18. It appears to me, as it did to the Employment Appeal Tribunal, that this point cannot effectively be argued on a second appeal where both the first appeal court and the second appeal court can only entertain arguments of law. Permission was not given to Mr Soteriou to argue before the Employment Appeal Tribunal the issues which Mr Nugent is seeking to argue in this court. It appears to me that those arguments have no prospect of success. The tribunal was entitled to reach its own conclusion as to Mr Soteriou's proper status at the beginning and as from the time that it changed, and to conclude that from the time that it changed both the employer and the employee were aware that the arrangement could have been changed. It greatly benefited Mr Soteriou that it should not be, and the tribunal found that it made less difference to the employers.
19. In those circumstances, the only viable argument on this appeal as to why this court should entertain an appeal, which is in essence a second appeal, is that the court should be influenced by two recent decisions; one of the Employment Appeal Tribunal and one in this court in relation to sex discrimination.
20. It has now been established in this court that in sex discrimination cases there may be an exception to the general rule that the tribunal will not be willing to entertain a claim of this kind because sex discrimination cases do not involve enforcing, relying or founding a claim on the contract of employment (see Leighton v Michael [1995] ICR 1091 and Hall v Woolston Hall Leisure Ltd [2000] 4 All ER 787). However, it appears to me that this case falls into a general pattern of cases where the law had been completely clear for the last 20 years. Mr Soteriou was the prime mover in the illegality with which this contract was formed from 1996 onwards. Mr Brinton was willing, knowingly, to go along with it. In those circumstances a second appeal to this court would inevitably be doomed.
21. I therefore refuse permission to appeal.
Order: Permission to appeal refused. (Order does not form part of the approved judgment)