United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR P M McGRATH (of Counsel) Messrs Penningtons Solicitors Phoenix House 9 London Road Newbury Berkshire RG14 1DH
For the Respondent	MR P DOUGHTY (of Counsel) Messrs Lamb Brooks Solicitors Victoria House 39 Winchester Street Basingstoke Hampshire RG21 7EQ


 


MR JUSTICE KEENE: This is an appeal against the decision of the Chairman of an Employment Tribunal sitting at Reading on a preliminary hearing to determine whether the respondent had been an employee of the appellant and so able to pursue a claim of unfair dismissal.

1. In the course of that hearing the appellant contended that because of an earlier contractual claim by the respondent in the County Court, it was not open to the respondent to pursue these proceedings before the Employment Tribunal. That argument was couched variously in terms of res judicata, issue estoppel and abuse of process.
2. The respondent began doing accountancy and bookkeeping work for the appellant company in October 1992. The respondent and the managing director of the appellant signed a letter of engagement dated 24th October 1992. The terms of that agreement required the respondent to carry out various bookkeeping and accountancy functions, to report to the managing director who would be responsible for all executive decisions and also not to "disclose to any third party other than the Company's auditors any information relating to the Company's affairs other than in the normal course of providing a bookkeeping/accountancy service."
3. There was a termination clause, which read as follows:

"This contract for services may be terminated by either party on giving thirty days notice in writing."

4. Payment to the respondent was said to be by way of fees based upon the degree of responsibility and skill involved and the time occupied on work undertaken.
5. Before the Employment Tribunal the respondent gave evidence that from mid-1994 onwards he was effectively working full-time for the appellant. Mr Hughes, the managing director of the appellant, gave evidence that this was an exaggeration. The tribunal referred to evidence that the respondent was required to keep a time sheet and it referred to the issue of lunch breaks "where Mr Hughes required the [respondent] to take 45 minutes off for lunch and not charge fees for such interval."
6. The relationship between the parties broke down in 1998. The Chairman of the Employment Tribunal dealt first with the issues of res judicata, issue estoppel and abuse of process. He said this at paragraphs 16 and 17:

"16. The issue before this Tribunal is whether the Applicant was an employee to entitle him to present a claim of unfair dismissal. I am satisfied that this was not an issue that was litigated before the learned District Judge or indeed upon which he made a finding. The live issue before the County Court was whether the Applicant's contract had been breached and had nothing to do with the Applicant's status, whether as an employee or a provider of services pursuant to a contract for such purpose. I agree with the Applicant's Counsel's contention that in so far as Judge Mildred made reference to a contract for services he was merely reciting the particulars of claim as a preamble towards his judgement on whether there had been a breach of contract. I also accept the Applicant's Counsel's contention that the Barber and Henderson cases are not relevant to the facts of this case.

17. I reject the contention of the Respondent's Counsel in paragraph 36 that in so far as the Applicant had elected to proceed on a claim in the County Court for a contract for services he is estopped from now pursuing a claim in respect of a contract of service on the Employment Tribunal. The Originating Application highlights his belief that the true nature of his relationship was a contract of service and that he sought a determination by the Tribunal on that aspect. The Applicant prudently lodged his claim to protect himself from breaching the three month time limit."

In consequence, the Chairman rejected the present appellant's arguments on these issues.

7. The pleadings in respect of the County Court proceedings have been made available to us as they were to the Tribunal Chairman. In his particulars of claim the now respondent sought money said to be due under the contract of 24th October 1992 for the period 1st to 22nd July 1998 and payment in lieu of notice of termination. The contract was described as a written contract for services by which the respondent provided accountancy services to the appellant. That was at paragraph 1 of the particulars of claim.
8. In its defence the appellant admitted the terms of the agreement but alleged that they had been varied by oral agreement so that Mr Payne's contract would terminate on 22nd July 1998 without further notice. It also put in issue the amount alleged to be due.
9. The learned judge found for the respondent on his claim.
10. On behalf of the appellant, Mr McGrath submits that there is an issue estoppel which arises here because of the County Court proceedings. He abandons any argument based upon res judicata in any wider sense than that, but he contends that paragraph 1 of the particulars of claim in the County Court, to which we have already referred, together with the admission by his client of that paragraph in its defence, gives rise to such an estoppel. It is said that although this was not a matter in dispute between the parties, nonetheless the judgment of the County Court on this matter constitutes a decision on the merits and thereby gives rise to an estoppel. Mr McGrath accepts that the County Court was not actually deciding whether the respondent was an employee or not, but he argues that those proceedings established by way of admission that this was a contract for services and not a contract of service.
11. It is argued that there is authority for the proposition that where a party in the course of legal proceedings admits a matter, an issue estoppel arises. For that, reliance is placed on the case of Khan v Golechha International Ltd [1980] 1 WLR 1482 at 1490 and on Barber v Staffordshire County Council [1996] IRLR 209 CA at page 213. In addition, it is submitted on behalf of the appellant that the respondent, in effect, elected to treat the contract as being one for services with the result that his present Originating Application before the Employment Tribunal means that he is blowing hot and cold, because in these proceedings he is seeking to treat the contract as one of service.
12. The principle of issue estoppel was concisely defined by the House of Lords in Arnold v National Westminster Bank plc [1991] 2 AC 93 at page 105:

"Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue."

13. The basic objective lying behind the doctrine is to ensure that issues once determined by a competent court are not the subject of an attempt to re-litigate them. There can be no doubt in the present case that the learned judge in the County Court did not himself decide the issue of whether Mr Payne was an employee or self-employed. It was not an issue which fell for determination. Those proceedings were, in essence, concerned with a claim for money due under a contract. But the appellant relies, as we have indicated, upon the fact that the respondent in those proceedings referred to the contract as being a contract for services and that the Company in its defence admitted this. Does that give rise to an issue estoppel?
14. One needs to exercise care when attention is drawn, as ours has been, to selective passages from judgments in the authorities. Mr McGrath places much reliance on the decision in Khan. But what was significant in that case is that the admission made in the earlier proceedings had led directly to the dismissal of the appeal. It was, in effect, an admission that the appeal was bound to fail. Brightman LJ said at page 1486F:

"In the event the appeal was not heard. It was dismissed by consent. The plaintiff on advice threw in his hand."

That was the essence of the admission being referred to in that decision. Now of course where a concession of such importance is made, leading directly to a judgment by consent, that is as efficacious for the purposes of issue estoppel as would be a court's determination of the issue, were it still in dispute. The case is no authority for the proposition that any matter, which is not in issue on the pleadings in the earlier proceedings, will automatically give rise to an issue estoppel.

15. Likewise, in one of the other cases referred to by Mr McGrath, Hoystead v Commissioner of Taxation [1926] AC 155, the admission in question had been fundamental to the earlier court decision.
16. That approach is consistent with the observations about issue estoppel made by Diplock LJ, as he then was, in Mills v Cooper [1967] 2 QB 459 at pages 468 to 469:

"That doctrine, so far as it effects civil proceedings, may be stated thus: a party to civil proceedings is not entitled to make, as against the party, an assertion, whether of fact or of the legal consequences of facts, the correctness of which is an essential element in his cause of action or defence, if the same assertion was an essential element in his previous cause of action or defence in previous civil proceedings between the same parties or their predecessors in title and was found by a court of competent jurisdiction in such previous civil proceedings to be incorrect, unless further material which is relevant to the correctness or incorrectness of the assertion and could not by reasonable diligence have been adduced by that party in the previous proceedings has since become available to him."

17. There is a distinction to be drawn therefore between issues which are determined between the parties in previous proceedings, either by the court on the merits or by concession by one party and, on the other hand, matters which are never truly issues between the parties in those earlier proceedings. Cases like Barber v Staffordshire County Council are dealing with situations where a matter was originally in issue but where one party threw its hand in, leading to a judgment against it. The position was summarised helpfully in SCF Finance Co Ltd v Masri (No.3) [1987] 1 QB 1028 at 1047G:

"The decision in Khan v Golechha International Ltd [1980] 1 WLR 1482 makes it clear that an order dismissing proceedings is capable of giving rise to issue estoppel even though the court making such order has not heard argument or evidence directed to the merits. … If a party puts forward a positive case, as the basis of asking the court to make the order which that party seeks, and then at trial declines to proceed and accepts that the claim must be dismissed, then that party must, in our view, save in exceptional circumstances, lose the right to raise again that case against the other party to those proceedings."

18. In the present case the nature of the contract between the parties and the status of Mr Payne under it, as an employee or self-employee, was never in issue in the County Court proceedings and was in no sense fundamental to that County Court claim. All Mr Payne had to do in those proceedings was to plead the existence of a contract and plead also that money was due under the contract. It was not essential to his claim or to the court's judgment that this was a contract for services as opposed to a contract of service. Nor, as we say, was that ever in issue between the parties. The County Court never determined such an issue nor did its judgment and order amount to any such determination, whether on the merits in the narrow sense, or by way of concession.
19. It is then said on behalf of the appellant that if the contract was, as in now alleged, one of service, then it was and is arguably illegal and the respondent's right to recover under it would be barred. Consequently, it is contended that the status of the contract is fundamental to the recovery of damages under it. Mr McGrath submits that the County Court judge found, as a necessary part of his judgment, that the contract was valid and existed as a contract for services. This argument is linked to another of the appellant's arguments, namely that there is an abuse of process here because the appellant has been prevented from arguing illegality before the County Court, which it would have done if the matter had been pleaded as a contract of service. Reliance is placed in that connection on the decision in Tomlinson v Dick Evans "U" Drive [1978] ICR 639. That was a case where a contract was illegal because under it pay was simply being taken out of the petty cash by the company concerned and passed to the person who was prima facie employed. That was clearly a fraud on the revenue.
20. We are bound to say that we cannot see any merit in these arguments about illegality. First of all, the County Court judge did not find that the contract was valid, because that was never an issue in those proceedings. It was simply assumed on all sides that the contract was valid. Secondly, and of the greatest importance in this context, the appellant could have raised the illegality of that contract even as the matter was pleaded in the County Court. There was nothing in the respondent's particulars of claim, asserting that the contract was one for services, which inhibited the present appellant in any way had it chosen to allege that the contract was illegal and therefore that the money was irrecoverable under it. Thirdly, unlike Tomlinson, there was no evidence here of any fraud on the revenue or any other source of illegality. The Employment Tribunal Chairman found that the status of the respondent, and hence the contract, "evolved" over time. It was not that the respondent was originally an employee dressed up in contractual terms as self-employed. There is no evidence that an argument of illegality, if it had been raised in the County Court, would have had any genuine prospect of success. The appellant has not been deprived of any real point which could have been taken in the County Court. Insofar as this argument is raised in the context of abuse of process, no injustice would result, in our judgment, from allowing the present proceedings before the Employment Tribunal to continue.
21. We therefore see nothing in terms of issue estoppel, which can operate to prevent the proceedings before the Employment Tribunal being pursued as the Chairman found.
22. So far as abuse of process is concerned, it was made clear by the Court of Appeal in the recent decision in Bradford & Bingley Building Society v Seddon Hancock [1999] 1 WLR 1482 that to maintain a later claim which conflicts with an earlier one is not automatically an abuse of process. To establish such an abuse it is necessary to demonstrate something over and beyond the mere fact of the second proceedings, such as a collateral attack on the previous court's decision, or unjust harassment arising from successive actions. We note that Mr McGrath no longer argues collateral attack, so we say no more about that. No argument is raised in respect of unjust harassment of this company.
23. In the Bradford & Bingley Building Society case it was acknowledged that abuse of process could arise where a party had, in effect, elected between two mutually inconsistent claims. Mr McGrath urges us to conclude that the respondent here had elected to sue on a contract for services and therefore cannot now allege a contract of service. We cannot accept that that is a proper analysis of the situation. The respondent was not electing between two inconsistent claims when he claimed money due under the contract. It was the existence of that contract and the terms relating to payment which were relevant to that claim in the County Court, not the nature of the relationship which it created between the two parties.
24. There is no additional element in this case, which gives rise to any abuse of process. We find it in no way surprising that the respondent, when suing for money owing, simply put forward the contract on the basis of how it was described on the face of the written document. There would have been little point in him in those County Court proceedings raising the issue of whether it was a contract of service rather than one for services.
25. Abuse of process in the end depends upon it being shown that injustice would result if the present proceedings were allowed to continue. It is a discretionary matter, as Mr McGrath acknowledges. There is no such injustice in the present case in allowing the proceedings before the Employment Tribunal to continue for the reasons to which we have already referred. We conclude that the Chairman was right in law in his ruling on this aspect of the matter and the first group of grounds of appeal therefore fail.
26. The second attack launched on the Chairman's decision is that he failed to find when it was that the respondent's status changed from that of being self-employed to being an employee. For this purpose reference is made to paragraphs 21 and 22 of the extended reasons of the Chairman. In paragraph 21 the Chairman referred to the fact that the label, which the parties put on an arrangement, is not necessarily probative of what the arrangement truly is. He went on to refer to certain aspects of the agreement which pointed more to a contract for services and against a contract of employment. At paragraph 22 he said this:

"22. However, matters in the relationship evolved so that the Applicant's involvement with the Respondent became significantly more than had been originally envisaged. It had of course been suggested to the Applicant that he keep up a reasonable proportion of private clients so that his self-employed status should not come into question."

The Chairman then went on to deal with certain factors, which persuaded him, that the status of the respondent was that of an employee. Amongst other things, he referred to the respondent's time sheets for the period from January to June 1998. Mr McGrath points out that that is the period immediately before the effective date of termination of the arrangements, to use a neutral term, between the two parties. The effective date of termination was 22nd July 1998. So it is submitted that there was a failure on the part of the Chairman to determine whether the respondent had the necessary qualifying service of one year before the effective date of termination so that he could pursue a claim for unfair dismissal.

27. On behalf of the respondent on this issue, Mr Doughty argues that by implication the Chairman was referring to Mr Payne's evidence that he was working full-time by mid-1994 or even, indeed, from the beginning of the relationship between the parties. He argues that the Chairman referred to the time sheets for January to June 1998 simply because they were the only time sheets which he had.
28. There is no doubt that the Chairman found that the relationship between these two parties changed over time. He refers, as we have indicated, to how matters "evolved" beyond that which had "been originally envisaged." What is not clearly stated in the extended reasons is when the respondent became, in the judgment of the tribunal Chairman, an employee. The reference to work sheets from January to June 1998 must cause some concern. This is a matter which goes to the tribunal's jurisdiction, and the lack of a clear finding on this point of timing is a problem.
29. We cannot accept Mr Doughty's argument that it is implicit in the decision that the Chairman was accepting Mr Payne's evidence in its entirety. He may have been, but the decision is unclear on what is patently a fundamental point in the case.
30. We propose therefore to allow the appeal solely on this one ground and to order that the case be remitted to the Chairman to determine when the respondent became an employee and whether he had the necessary period of service as an employee to present a claim for unfair dismissal. To that limited extent, but only to that extent, this appeal succeeds.