Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
United Kingdom Employment Appeal Tribunal
You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Laurie v Holloway [1993] UKEAT 210_92_1901 (19 January 1993)
URL: http://www.bailii.org/uk/cases/UKEAT/1993/210_92_1901.html
Cite as: [1993] UKEAT 210_92_1901
[New search] [Printable RTF version] [Help]
At the Tribunal
Before
THE HONOURABLE MR JUSTICE KNOX
MR A D SCOTT
MRS P TURNER OBE
Transcript of Proceedings
JUDGMENT
Revised
APPEARANCES
For the Appellant MR P AEBERLI
(Of Counsel)
Free Representation Unit
49-51 Bedford Row
LONDON
WC1
For the Respondent NO APPEARANCE BY
ON OR BEHALF OF THE RESPONDENT
MR JUSTICE KNOX: This is an appeal by Mr Laurie from a decision of the Industrial Tribunal sitting at London (South) on the 27th January 1992 and sent to the parties on the 5th February 1992 to the effect that the contract of employment of Mr Laurie, contained provisions to defraud the revenue and therefore was not one upon which the Tribunal could or should adjudicate. There was, therefore, no Tribunal finding on the central facts which were in issue between the parties, which was whether or not Mr Laurie had been unfairly dismissed, as he claimed.
The factual background was relatively simple in that Mr Laurie was employed by the Respondent to the application and to this appeal, a Mr Holloway. He has not appeared either in person or by representative before us and we therefore only had the benefit of argument from Counsel for Mr Laurie.
The hearing before us today is in fact the second hearing of this appeal which first came before us in January 1993 when we adjourned the matter to enable Counsel for the Appellant, Mr Aeberli to provide a note of the hearing and for the Chairman of the Industrial Tribunal to be invited to give his comments upon that note. That has been done and we have both Counsel's note and comments of the Chairman upon that note.
Counsel's account is as follows. He opened the case and called Mr Laurie, the employee, to give evidence, who was then cross-examined by Mr Asif, Counsel for Mr Holloway the employer. Thereafter the Chairman of the Industrial Tribunal questioned Mr Laurie and those questions were the ones which are recorded as having elicited particular answers in paragraph 3 of the Industrial Tribunal's decision. That reads as follows:
"In response to questions put by the Chairman of the Tribunal, the Applicant gave evidence to the following effect:
iHe was given £250 per week to take home
iiHe had never known what his gross wage was
iiiHe had never been given any wage slips
ivHe never saw a tax deduction certificate
vHe did not know that any tax had been deducted
viIt was the same all through his years of employment
viiHe had originally been employed at a net wage of about £50 or £60 per week
viiiHe was not then told what he was going to earn gross"
Counsel's note then goes on to say that after those answers had been given he addressed the Tribunal and said:
"I had been advised by Counsel [Mr Asif] for the Respondent [Mr Holloway] that payslips were available and that, if the Tribunal was concerned about illegality, these could be put in evidence during the Respondent's evidence. The Chairman replied that it was a matter for me [Mr Aeberli, Mr Laurie's Counsel] to decide."
Now that is something which Mr Aeberli has, very properly and frankly, accepted to us that Counsel for the Respondent [Mr Asif] has said he had no recollection of. It is also something of which the Chairman finds himself in the same position of not having any recollection because the account of the Chairman's comments includes the following:
"At this distance in time, the Chairman cannot recall the alleged exchange between Mr Aeberli and himself set out at item 3 in Mr Aeberli's Note. It may be that Counsel for the Respondents will have some better recollection."
There is, therefore, perhaps a degree of doubt as to the accuracy of Counsel's recollection of that particular exchange, but we are content to proceed upon the basis that his recollection, as recorded in his note, is correct. Certainly no one contradicts it.
Then, so far as the illegality aspect of the matter is concerned, very little happened indeed. Counsel's note reveals that Mr Asif was given leave further to cross-examine Mr Laurie and that is recorded again in the Industrial Tribunal's decision in paragraph 4 of their decision when they say:
"Counsel for the Respondents then asked for leave to further cross-examine the Applicant, [Mr Laurie] and put it to him that he had asked Mr Holloway to keep his wage slips at the workshop, and that there was a collection of such wage slips still available at the workshop. The Applicant [Mr Laurie] denied both suggestions."
Then there was an adjournment. After the adjournment Mr Holloway, the employer, gave evidence but no one, Counsel on either side or the Tribunal, appear to have asked Mr Holloway any questions about the matters that are dealt with in paragraph 3 of the Industrial Tribunal's decision, the several answers that Mr Laurie gave to the Chairman's questions. There was subsequently evidence given by a friend of Mr Holloway, a Mr Godley, who employed Mr Laurie after he, Mr Laurie, had left Mr Holloway's employment. His evidence, stated shortly, was that he took Mr Laurie on as a self-employed person and he worked for him for some time, on that basis, being paid of course, without any PAYE deductions, because he was self-employed.
The Industrial Tribunal also records that there was no evidence given of Inland Revenue form 716, which is the form that records the fact that a person is being allowed to be treated as self-employed, where it is appropriate, having been obtained. The Industrial Tribunal also made the observation that it was most noticeable that neither the Applicant's representative nor the Respondent's Counsel put any question to Mr Holloway regarding the terms of the Applicant's contract relating to wages or the tax on that income, whether at the commencement of his employment or at any time thereafter. Upon that state of affairs, which it will be noted does not include any further ventilation of the question of illegality after the luncheon adjournment, the Industrial Tribunal came to the conclusion that the arrangement between Mr Laurie and Mr Holloway was, from the outset, one intended to deprive the Inland Revenue of the income tax leviable on Mr Laurie's earnings, whatever words were used by the parties at the time, and continued to be so for most, if not all, of the time that Mr Laurie was employed. Once one reaches that conclusion, of course, it follows, as the Industrial Tribunal held, that the contract was in fraud of the Revenue and that the Tribunal could not entertain the proceedings at all.
It is finally to be noted that Mr Aeberli's note says that save with regard to what he had earlier mentioned, which I have gone through so far as illegality is concerned, the issue of illegality was not raised or referred to during the course of the hearing either by witnesses, counsel or members of the Tribunal. In particular, while closing speeches were being made, the issue was not raised by the Tribunal.
So far as the general principles of law are concerned there is no doubt, and Mr Aeberli did not seek to challenge the proposition, that if illegality is apparent on the face of a contract, or the contract is one which cannot be performed without illegality, on the part of either or both the parties to the contract, the contract is illegal and void ab initio and neither party can rely upon it. Equally, it is also settled that where the contract is, on its face, lawful, as indeed a contract of employment, on its face, obviously is, it will nevertheless be regarded as illegal and void if both parties intend that it should be used as a vehicle for perpetrating a fraud on the revenue. There is not much doubt about either of those two propositions.
The third relevant principle is that if you have a contract which is, on its face, lawful, and one party alone is guilty of illegal purposes, the other party being innocent of knowledge of the illegality, then the innocent party can enforce the contract despite the element of illegality and notwithstanding the fact, of course, that the other party who is party to the illegality cannot enforce it. But it has been held in a case to which we were referred by Mr Aeberli, Newland v. Simons & Willer (Hairdressers) Ltd [1981] IRLR 359 that in that type of situation of a contract which on its face was lawful, but one party is guilty of illegality in its execution, the test as regards the other party is not whether that other party ought to have known of the illegality but whether that party did in fact know of the illegality. The facts of that case bear some fairly close resemblance to the facts of this case in that there were payments on a cash basis made to the employee and, that of course, is entirely consistent with the answers that were given and recorded in paragraph 3 of the Industrial Tribunal's decision, which incidently was consistent with the Originating Application, which just recorded under the heading "Salary" an average take-home pay of £250 a week, saying nothing about basic wage or salary or other bonuses or benefits. To that extent, therefore, the case of Newland v. Simons & Willer is similar to the present one. There are, as always happens, significant differences, however, and they were that in that Newland case the employer gave evidence of a particular gross wage and evidence of income tax and national insurance contributions being deducted in the usual way and there was produced to the Industrial Tribunal a wages book which showed a net take-home pay which was consistent with that evidence. However, the Industrial Tribunal did not believe that evidence and so there was a specific finding of illegality in relation to the employer's activities.
The Industrial Tribunal having set out the first two basic propositions regarding illegality, which I stated earlier and need not repeat, went on to say in paragraph 16 ([1981] IRLR 362):
"Secondly, however, as du Parcq LJ said in Miller v. Karlinski (1945) 62 TLR 85, `There is nothing necessarily wrong or illegal in agreeing to pay to an employee a sum free of income tax'. One or both of the parties to such a contract may intend an illegality, but such a contract can nevertheless simply be performed in a lawful manner if the employer grosses up whatever he has agreed to pay his employee to such a figure that, after deduction of the income tax appropriate to that figure, the employee is left with the agreed cash sum in his or her hands. Such a method of payment is not usual, but it is by no means unknown."
and then they want on to deal with the facts of that particular case, and in that case it was held that the employee was not shown to have had knowledge, as opposed to notice, of the illegality and was therefore, not disentitled from relying on the contract.
Various points were urged upon us by Mr Aeberli, notably, that there was no sufficient evidence in the findings in paragraphs 3 and 4 of the decision of the Industrial Tribunal which records Mr Laurie's evidence about his wages and how they were paid, to raise a sufficient case for there to be an inference drawn that Mr Laurie, as opposed to Mr Holloway, was party to or had actual knowledge of, any illegal arrangement. Mr Aeberli pointed out that it was not impossible that the contract was lawful even in the light of all the answers that Mr Laurie gave in answer to the Chairman. On that basis he submitted that there was no case at all for showing illegality as against Mr Laurie.
We are not satisfied that one can put the case as high as that because it seems to us that there is enough raised in those answers given by Mr Laurie for it to be at least possible, some might say probable, that what was afoot was an arrangement which was intended to defraud the Revenue. On that basis Mr Aeberli, very rightly, accepted that if there was enough to raise the possibility of such an inference being drawn, the subsequent matters that the Industrial Tribunal took into account, which he submitted were either irrelevant as not logically probative or entirely neutral, do not really have any practical significance because what is clear is that there was no positive evidence in favour of the proposition that the contract was in fact being lawfully performed in all respects and in those circumstances it really is entirely upon the last of Mr Aeberli's submissions that in our view this appeal turns.
The last of his submissions was directed to the proposition that there was not sufficient notice, if any, given to the parties of the Tribunal's intention to decide to refuse to entertain the application on the basis of the illegality of the party's activities. We were referred to Peter Thomas Mahon v. Air New Zealand Ltd & Others [1984] AC 808, which was concerned with the conduct of a Royal Commission by a New Zealand High Court Judge in investigating a disastrous accident when an aircraft flew into Mount Erebus in Antarctica and everyone on board was killed. The New Zealand High Court Judge found that the dominant cause of the accident was the act of the airline in changing the computer track of the aircraft without telling the air crew. He, in contrast the conclusions of an inquiry held by the Chief Inspector of Air Accidents, exonerated the Captain and other members of the crew from blame and also found that there had been a pre-determined plan of deception on the part of the officials of the airline with the results that he had had to listen to, what he described as, "an orchestrated litany of lies", and he made an order for the airline to pay £150,000 towards the costs of the Royal Commission. That order for costs was set aside by the Court of Appeal in New Zealand and that decision was upheld by the Judicial Committee of the Privy Council. The relevant passage in the opinion of the Board, which was delivered by Lord Diplock is to be found at pages 820 and 821 where his Lordship deals with the relevant rules of natural justice in a way which is germane to this appeal in that, the Royal Commission, like the Industrial Tribunal, is not bound by the strict rules of admissibility of evidence. So far as the Industrial Tribunal is concerned, Rule 8 of the Industrial Tribunals (Rules of Procedure) Regulations 1985, require the Tribunal to:
". . . conduct the hearing in such manner as it considers most suitable to the clarification of the issues before it and generally to the just handling of the proceedings; it shall so far as appears to it appropriate seek to avoid formality in its proceedings and it shall not be bound by any enactment or rule of law relating to admissibility of evidence in proceedings before the courts of law."
Similarly, with the Royal Commission in New Zealand, the rules of admissibility of evidence were not strictly binding. But that made the rules of natural justice particularly important and Lord Diplock held that two such rules were relevant. The first rule is one which is not relevant for our present purposes but the second rule is stated as follows:
"the second rule is that he [that of course refers to the person making the relevant decision] must listen fairly to any relevant evidence conflicting with the finding and any rational argument against the finding that a person represented at the inquiry, whose interests (including in that term career or reputation) may be adversely affected by it, may wish to place before him or would have so wished if he had been aware of the risk of the finding being made."
and a little later on at page 821 his Lordship said:
"the second rule requires that any person represented at the inquiry who will be adversely affected by the decision to make the finding should not be left in the dark as to the risk of the finding being made and thus deprived of any opportunity to adduce additional material of probative value which, had it been placed before the decision-maker, might have deterred him from making the finding even though it cannot be predicted that it would inevitably have had that result."
In our view those words are of significance to the hearing of this appeal which we think succeeds on this point because, in our view, where a tribunal is minded to take a point taken by neither of the parties before it, it is of the first importance that the parties should clearly be alerted to that possibility, or as it may be, probability. In this case there was an indication that illegality was possibly in the minds of the Tribunal, more especially if one accepts, as I have said we do, what Mr Aeberli says in his notes of what occurred before the Tribunal because, it will be recalled that he said that:
"if the Tribunal was concerned about illegality, these [the payslips] could be put in evidence during the Respondent's [Mr Holloway, the employers] evidence."
The slightly Delphic reply that is recorded as having been given was:
"that was a matter for me [Mr Laurie] to decide."
and we interpret that as being a perfectly correct intimation by the Chairman that it was up to the Counsel for the parties to decide what evidence they were going to call.
That does not really touch the question, in our view, of whether the parties were sufficiently alerted to the prospect of the Industrial Tribunal raising a point, not raised by either party, which was likely to be dispositive of the case and, in particular, it seems to us that if this decision was to stand, it would have been necessary for the Industrial Tribunal to warn the parties before the closing speeches were concluded that the Tribunal was troubled on the aspect of illegality. No such warning appears to have been given, all that was said was that exchange between Counsel and the Chairman of the Tribunal, which might or might not have conveyed to an experienced advocate the seriousness of the risk that the Applicant's case was running. That seems to us to be an inadequate degree of warning, more especially when one bears in mind, that the finding that was made was one of deliberate criminal conduct on the part of the parties. On the evidence before us it is quite impossible to say whether they were or were not guilty of that, but that is by the by, what matters is that it was a very serious matter of which it seems to us that insufficient notice was given by the Industrial Tribunal.
The conclusion is therefore that we think it would be unsafe for this decision to stand and that there was an error in law in failing to give adequate notice of the illegality point and accordingly, we allow this appeal, remit this case to be heard, and we think on balance it would be better if it was heard by a different tribunal. It is of course quite impossible for us to express any view on whether the contract was in fact legal, or illegal. That is something outside our jurisdiction which will sadly have to be decided by a further tribunal hearing.