United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR FRANK AGHOVIA (Representative) 1st Business Support 12 Westminster Court Hipley Street Surrey GU22 4AB


 


MR JUSTICE DOUGLAS BROWN

1. This is an appeal by Mr G S Cannon, trading as Barkway Park Golf Club, from a decision of the Employment Tribunal sitting at Bury St Edmunds, the extended reasons being sent on 9 February 2001, when Tribunal decided that the Respondent, Mrs Valerie Sadler was wrongly and unfairly dismissed. The Tribunal dismissed her claim for sexual discrimination and there is no cross-appeal.
2. Mrs Sadler was employed in a general role at the golf club from 1995, being involved in catering, administration, dealing with the Members, shop sales and generally assisting in the life of the club. She also did the bookkeeping.
3. Mr Cannon acquired the club in April 1999 and at first relations were amicable. In August 1999, saying that he could not afford a pay rise, he provided Mrs Sadler, with the use of a car, she being the registered keeper and paying tax, insurance and the running costs. It was acquired by way of a loan or hire purchase and Mr Cannon paid for this.
4. By 2000 the relationship had deteriorated. As only one point is raised in this appeal it is necessary only to summarise very briefly the events leading to her leaving. Mr Cannon tried to change the nature of her work and tried to reduce her to a part-time employee. The Tribunal found him to have been in repudiatory breach of contract, which repudiation she accepted by a letter from her solicitors in July 2000.
5. No reason was given for Mr Cannon's conduct and the Tribunal found the dismissal unfair. In his IT3 response Mr Cannon listed 22 separate allegations of misconduct against Mrs Sadler, but no where was the car, or how it should be treated from a taxation point of view, mentioned.
6. At the hearing Mr Cannon's solicitor, Mr Aghovia, who has also appeared before us, raised the question of the car. Because Mrs Sadler had not informed the Inland Revenue on Form P11D that she had received a taxable benefit in the form of the car, he argued before the Tribunal that the employment was tainted with illegality and therefore unenforceable.
7. A number of cases were relied on including Salvesen v Simons [1994] IRLR 52. As that case is an important one in the decision of this Tribunal we refer to the head note which accurately summarises the judgment given by Lord Coulsfield.
8. The Employment Appeal Tribunal held in that case that the majority of the Industrial Tribunal had erred in holding that, although the arrangement for payment of the Respondent employee's contractual remuneration involved a breach of the tax collection rules, and therefore was illegal, that illegality did not preclude the Tribunal from awarding him compensation for unfair dismissal in circumstances in which neither party to the arrangement knew or suspected that it was in fact illegal.
9. The rule that the courts will not enforce an illegal contract, the ex turpi causa rule, prima facie applies where a plaintiff seeks or is forced to found a claim on an illegal contract. The authority established that where an employee agrees to be paid, according to a scheme which is devised to avoid, or at least postpone, the proper payment of income tax, the contract of employment is an illegal one which the courts will not enforce.
10. Ignorance of the illegal character of the agreement does not prevent the application of the ex turpi causa non oritur actio rule. Thus the fact that all the parties to the agreement thought that what they were doing was lawful is irrelevant. If a party knew what was being done it is irrelevant that it did not know it was illegal.
11. The Tribunal dealt with the matter of illegality in this way:

25. "The question arises as to whether during the performance of the contract it became illegal as a result of the tax treatment of the motor vehicle. We conclude that it did not. The Applicant was at no time informed as to how to deal with the provision of the motor car. She was not aware of the basis upon which the car was supplied to her. There was no documentation about it. She was not aware of the finance arrangements entered into by the Respondent. She did not make out any cheques in relation to it. The vehicle was in her name. The Respondent was a named driver. The Applicant discharged all tax, insurance and petrol costs. She was not instructed to make out any tax return in relation to it. It was no doubt a benefit to her but was it a benefit derived from her employment with the golf club? The Applicant has no expertise in tax law. If the vehicle was provided through another of Mr Cannon's businesses or from his private accounts it would not be regarded as a benefit accruing from this contract of employment. It may have had to have been shown in the books in one of the other businesses or if a private arrangement arising from the personal relationship, there would have been no tax impact. The Applicant did not know the true facts, nor have we have the true facts explained to us. There was no intention by either party to defraud the Revenue. There was no discussion of tax treatment. If unwittingly the Applicant completed the wages record incorrectly, it was through ignorance of the facts and a failure to give her instructions by the Respondent. We are quite content to proceed with the complaint and are not prepared to strike it down on the basis of alleged illegality."

12. The only point taken on this appeal is that the decision on illegality was wrong. There is no challenge to any of the facts found by the Tribunal. Mr Aghovia repeats the submissions he made before the Tribunal, that Mrs Sadler was defrauding the Revenue and that the Tribunal misdirected itself.
13. In our view this approach is misconceived for two reasons. Firstly, the Tribunal expressly acquitted Mrs Sadler of any fraud or dishonesty, or any participation in a scheme which was devised to defraud the Revenue. Inferentially they acquitted Mr Cannon as well. There was no scheme to defraud the Revenue.
14. Secondly, not a point stressed by the Tribunal but decisive of this ground nevertheless, for the maxim ex turpi causa non oritur actio to apply, the Claimant or Applicant must be relying on the dishonesty as founding her claim. Here the contract of employment was not tainted by illegality. The provision of the car was not central to her claim of unfair dismissal, which succeeded on its merits, not challenged on this appeal. Even if the contract was tainted by illegality, it is not in every case that the contract must be struck down and an Applicant barred from succeeding.
15. Mr Aghovia referred us to Hall v Woolston Hall Leisure Ltd [2000] IRLR 578, a case on different facts, where the claim was based on sexual discrimination. In that case the facts were very different. The employer, after she had begun her employment and was promoted, told her that she would be paid on a basis which was obviously designed to deceive the Revenue. When she queried it she was told "it's the way we do business".
16. The finding of the Tribunal, which was not disturbed on appeal to this Tribunal or the Court of Appeal, was that she participated in the illegality. In that case, the Court of Appeal overruling this Appeal Tribunal, decided that in the case of sexual discrimination, even the fact that she was participating in the deception of the Revenue, was not fatal to her claim.
17. This statement of principle comes from the decision of the Court of Appeal, where the contract of employment is neither entered into for an illegal purpose, nor prohibited by a statute, the illegal performance of the contract will not then render the contract unenforceable unless, in addition to knowledge of the facts which make the performance illegal, the employee actively participates in the illegal performance. It is a question of fact in each case, whether there has been a sufficient degree of participation by the employee.
18. The findings of fact by the Tribunal here were that there was no illegal scheme for Mrs Sadler to participate in and this appeal at this stage can easily be identified as an appeal which should go no further and it is dismissed at this stage.