United Kingdom Employment Appeal Tribunal

BAILII case number: [1994] UKEAT 792_93_2810

Appeal No. EAT/792/93

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 28th October 1994

Judgment delivered on 18 November 1994

Before

THE HONOURABLE MR JUSTICE MUMMERY (PRESIDENT)

MR T S BATHO

MR D A C LAMBERT

---

P McGEOUGH          APPELLANT

OXFORD UNITED FC LTD          RESPONDENTS

---

Transcript of Proceedings

JUDGMENT

Revised


 


---

APPEARANCES

For the Appellant MR C JEANS

(of Counsel)

Brookstreet

Des Roches

1 Des Roches Square

Witan Way, Witney

Oxon OX8 6BE

For the Respondents MR N PLEMING QC

MR S WILKEN

(of Counsel)

Cox Clitheroe

38 Warren Street

LONDON W1P 5PD


 


MR JUSTICE MUMMERY (PRESIDENT) In 1986 Mr Robert Maxwell was the controlling shareholder in Oxford United Football Club Ltd ("the Club"). Mr McGeough, who was asked by Mr Maxwell to take over the duties of Managing Director of the Club, devoted his services full time to the Club from 1986 until his employment was terminated on 21st October 1992. That event led Mr McGeough to present a complaint of unfair dismissal to the Industrial Tribunal on 12th January 1993. The Club, which had been taken over by Biomass Ltd after the death of Mr Maxwell in November 1991, contested the claim on two grounds:-

(1) Mr McGeough had not been employed by the Club as at the effective date of termination (21st October 1992) for the minimum statutory qualifying period of two years. The Tribunal therefore had no jurisdiction to hear his application.

(2) Mr McGeough was not dismissed. He resigned.

This is an appeal by Mr McGeough against the majority decision of the Industrial Tribunal, held at Reading on 21st May 1993, on a preliminary point that Mr McGeough had insufficient qualifying service to enable him to claim unfair dismissal.

The Law

It is argued by Mr Christopher Jeans, on behalf of Mr McGeough, that the full Reasons of the majority, given by the Industrial Tribunal on 19th August 1993, are flawed by error of law. In order to understand his submissions, it is first necessary to summarise the relevant statutory provisions of the Employment Protection (Consolidation) Act 1978 which form the foundations of his arguments. Omitting immaterial qualifications, the statutory provisions may be summarised as follows:

(1) In every employment to which the statutory provisions apply every employee has the right not to be unfairly dismissed by his employer: S.54(1).

(2) That protection does not apply to the dismissal of an employee from any employment if the employee was not continuously employed for a period for not less than two years ending with the effective date of termination: S.64(1)(b).

(3) An employee is defined as an individual who has entered into or who works under a contract of employment and an employer is defined as the person by whom the employee is employed: S.153(1).

(4) A contract of employment is defined as a contract of service, express or implied, oral or in writing and "employment" means employment under a contract of employment: S.153(1).

Although the Industrial Tribunal unanimously found as a fact that Mr McGeough devoted his services full time to the Club from 1986, when he took up the duties of Managing Director, until the termination of his employment on 21st October 1992, the majority concluded that he did not have sufficient qualifying service as an employee of the Club. How did the majority reach that conclusion? Is it legally correct? To answer those questions we must examine the facts on which and the reasoning by which that conclusion was reached.

The Facts

Although the members of the Industrial Tribunal were in disagreement on the result, they were in agreement on the primary facts as follows:-

(1) In 1982 Mr Maxwell acquired a substantial interest in the Club and asked Mr McGeough, who had a keen interest in football, to undertake the duties of a part-time Finance Director of the Club. In 1985 Mr McGeough began working for Pergamon Holdings Ltd, another of Mr Maxwell's companies. Mr Maxwell's son, Kevin, was appointed chairman of the Club.

(2) In about 1986 Mr Robert Maxwell asked Mr McGeough if he would take over the duties of full time Managing Director of the Club. Mr McGeough, who was willing to do this, moved to the Club, took up the duties of Managing Director and devoted his services full time to the Club. He worked hard on behalf of the Club, dealing with the Club's business from the office at the Club ground and reporting to Mr Kevin Maxwell as Chairman of the Board. The Club provided him with a car for use in connection with his duties as Managing Director, as well as for private use. The Club reimbursed him for out of pocket expenses incurred in connection with his employment. Until the death of Mr Robert Maxwell in November 1991, Mr McGeough's salary, which was increased from time-to-time and stood at £50,000 in 1992, was paid by Pergamon Holdings Ltd after deduction of tax and National Insurance Contributions under PAYE. That Company raised invoices to the Club for the salary paid to Mr McGeough in a form which was "capable of supporting the suggestion that payments had been made by Pergamon as agents for the [Club]", but at no time was the Club ever required to make any repayment to Pergamon Holdings Ltd. At no time before the death of Mr Robert Maxwell was Mr McGeough supplied with a written contract of employment or a written statement of his terms of employment by the Club or by any of Mr Maxwell's companies.

(3) There was a rule regarding the remuneration of directors of football clubs. The rule was required to be inserted in the Articles of Association of any club, constituted as a company, which became a member of the Football Association and wished to take part in the Football League. The Tribunal found as a fact that Mr McGeough was at all material times aware of the existence, nature and effect of this rule which was designed to prevent directors of football clubs from taking excessively large sums by way of salaries to the detriment of the game, the Association and League. The Rule must be set out in its actual words since the interpretation and effect of the rule was the source of the disagreement between the members of the Industrial Tribunal.

"(3) Remuneration of Directors

(a) Save as provided in sub-clause (b) a director (as defined by the Companies Act) shall not be entitled to receive any remuneration in respect of his office as a director or as an employee of the club.

(b) Directors of any club in full or Associate Membership of the Association may receive remuneration in consideration of their appointment as director, provided that the terms of such appointment are notified to and approved by the Association and the League of which the Club's first team is a member and that such appointment is in respect of full time employment."

(4) When Mr McGeough asked Mr Robert Maxwell whether or not they should apply to the Football Association for permission for him to be remunerated by the Club, Mr Maxwell, without explanation, said that he did not propose to approach the Association. After Mr Maxwell's death the Maxwell family shares were purchased by Biomass and an application was made on 3rd January 1992 to the Association seeking their approval to Mr McGeough's appointment as a paid director. By a letter dated 21st February 1992, the Association informed Mr McGeough that his appointment as a paid director of the Club had the approval of the Association. On 5th March 1992 the Football League gave their approval to his appointment as a paid director. Although a contract of employment was drawn up, but never signed, the Club conceded that from 1st December 1991 until 21st October 1992 Mr McGeough was an employee of the Club for the purposes of the Employment Protection (Consolidation) Act 1978. The dispute is whether he was an employee of the Club at any period prior to 1st December 1991. It appears to have been common ground before the Tribunal that the consents given by the Association and the League in February and March 1992 were retrospective to 1st December 1991.

Tribunal's Decision

As appears from paragraph 16 of the Tribunal's decision the main submission on behalf of Mr McGeough was that the relationship of employee and employer existed between him and the Club despite the fact that his remuneration was paid by Pergamon Holdings Ltd and despite non-compliance with Rule 34. The main submission on behalf of the Club was that, in view of the Association's requirements and the fact that consent had not been obtained before 1991, the Club had no power to make a contract of employment with Mr McGeough. It was ultra vires and void. There was no mutuality of obligation, no employment. The capacity in which Mr McGeough acted was as a director of the Club, not as an employee.

The Tribunal failed to reach agreement. The view of the majority was that Mr McGeough did not satisfy the qualifying period because, prior to 1st December 1991, no mutuality of obligation could have arisen. As Mr McGeough knew, the Club was expressly forbidden from remunerating him without the prior consent of the Association and the League. It had no power to remunerate him for his services either by way of salary or fringe benefits. There could not, therefore, have been a contract of employment before 1st December 1991. The subsequent employment was not long enough to qualify for protection under the 1978 Act.

The minority view was that discretion should be allowed in deciding whether the Club had acted outside its powers. If consent had been sought from the Association, it would have been obtained without difficulty. It would be a denial of natural justice to prevent Mr McGeough from challenging the fairness of his dismissal on the ground that his services with the Club prior to 1st December 1991 did not constitute service under a contract of employment.

The Legal Position

In our judgment, the conclusion of the majority was based on a legally incorrect interpretation and application of the provisions of Rule 34 to the facts of the case. The correct legal position is as follows:-

(1) In 1986 Mr McGeough entered into a contract with the Club to act as its Managing Director. An offer of that position was made to him through Mr Robert Maxwell on behalf of the Club. That offer was accepted by Mr McGeough taking up the position, discharging the duties of Managing Director and devoting his services full time to the Club.

(2) Prima facie a contract of employment was entered into and worked under by Mr McGeough with the Club. As was said by Mr Justice Phillips in Folami v. Niger Line (UK) Ltd [1978] ICR 277 at 280C

"... Where it is established that a person has been appointed managing director of a company, that his duties include effective management of the affairs of the company in all its aspects, that he has discharged those duties, and that he has been remunerated by that company in the sense that he has received a salary from the hands of that company, the prima facie conclusion to be drawn is that he is an employee of the company."

The fact that the contract was not in writing and that the remuneration was, after deductions, actually paid by Pergamon Holdings Ltd, did not make the contract any the less a contract of employment of Mr McGeough as Managing Director of the Club. It appears from a letter written by the present Managing Director of the Club (Mr K A Cox) on 6th April 1993 that part of the Club's case was that prior to 1st December 1991 Mr McGeough was "an employee of Maxwell Group companies". The Tribunal did not find that to be the case. We agree with the comment made by Mr Nigel Pleming QC, on behalf of the Club, that the Tribunal did not say in terms that it found that Mr McGeough would have been an employee of the Club but for the conclusion of the majority on the effect of Rule 34. In our view, however, it is clear from the facts found by the Industrial Tribunal and the reasoning of the majority that, apart from the application of Rule 34, Mr McGeough was an employee of the Club and not of another Maxwell Company from 1986 onwards.

(3) This appeal, as did the decision of the Tribunal, turns on Rule 34. It was submitted by Mr Pleming, on behalf of the Club, that the effect of failing to comply with Rule 34, as incorporated into the Articles of Association of the Club, was to make the 1986 contract for the appointment of Mr McGeough as Managing Director of the Club void for lack of requisite power, authority and capacity. The Club's case was that, as the Rule prohibited the payment of remuneration, the payment of it was void. Questions of remuneration, appointment and employment could not be severed from one another. The payment of remuneration was fundamental to the existence of the employer/employee relationship. If, as was contended, such payments were void, there could be no contract of employment. The approval of the Association and League was necessary to make the contract effective. There was no provision in the Rule that, once approval was given, it was to have retrospective effect. The position was that there could be no valid contract before 1st December 1991. It followed that no continuous employment within the meaning of the 1978 Act could be established by reference to pre-December 1991 events. These submissions were supported by reference to authority. Reliance was placed on Re Coltman (1881) 19 ChD 64 at 71 for the proposition that a contract is void and cannot be enforced against a company or ratified by it if neither the directors of the company nor the company had authority to make it. A more recent case Guinness Plc v. Saunders [1990] 2 WLR 324 at 334 was cited for the proposition that a director accepts office subject to the provisions of the Articles relating to directors. He is bound by those Articles, even if he does not read them or misconstrues them. A contract made in breach of the Articles is made without authority, is void and unenforceable against the company. That was a case of an action for recovery of payments made to a director in breach of fiduciary duty. It was held that the payments made were recoverable and that the director in question was not entitled to any part of them as a quantum merit based on an implied contract to pay reasonable remuneration for services or by way of equitable allowance.

(4) In our view, those submissions are not a correct analysis of the legal position in this case. We return to the essential question, whether Mr McGeough was continuously employed by the Club for a period of not less than two years before 21st October 1992. The Industrial Tribunal was not prevented by Rule 34, by precedent or by principles of ultra vires from giving a common sense answer to this question. The position is, as submitted by Mr Jeans, that Mr McGeough entered into and worked under a contract of employment with the Club under which, for an agreed remuneration, he rendered services as a Managing Director in excess of five years. It was full time paid employment. His services were rendered only to the Club. Rule 34 did not place any prohibition or restriction on the Club from entering into a contract of employment with the Managing Director. The restriction was that a person in the position of Mr McGeough had no right to receive remuneration until the requisite approval was granted by the Football Association and the Football League. That restriction would have the effect of preventing him from bringing proceedings against the Company to recover unpaid remuneration. There is, however, nothing in Rule 34 which deprives the Club of the capacity, power or authority to agree to employ Mr McGeough as a Managing Director or to agree to pay him remuneration for such employment conditional on necessary consents. Although approval was necessary to enable him to recover unpaid remuneration, the lack of such approval could not have the drastic legal consequences contended for by the Club namely, that although it received the benefit of his services, he was not an employee in the absence of such approval.

In brief, the error of law in the decision of the majority was to attribute to the operation of Rule 34 more drastic legal consequences than in fact flowed from non-compliance with it.

Conclusion

For these reasons the appeal is allowed. The case will now proceed in the Industrial Tribunal on the question whether Mr McGeough was dismissed or whether he resigned from his position as Managing Director on 21st October 1992 and, if he was dismissed, whether the dismissal was fair.