Appeal No. EAT/606/94

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 3rd November 1994
	Judgment delivered 28 April 1995

	Before

	HIS HONOUR JUDGE J BULL QC

	MR J D DALY

	MR T C THOMAS CBE

MR L J SLINGO	APPELLANT

A & R MOTORS LTD	RESPONDENTS

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellant	MISS J HEAL
(of Counsel)
Messrs V L Humphreys & Co
Solicitors
248-250 High Street
Guildford
Surrey GU1 3JG

For the Respondents	MR P KIRBY
(of Counsel)
Messrs Pitman & Bazett
Solicitors
The Manor House
34 London Road
Newbury
Berks RG13 1JX

HIS HONOUR JUDGE BULL QC             This is an appeal by the employee against a decision of an Industrial Tribunal sitting at Southampton on a complaint by the Appellant of unfair dismissal.  The Industrial Tribunal initially sat to hear the complaint on 7th October 1993 and held the complaint established, their Reasons being sent to the parties on 9th December 1993.  The Respondent thereafter sought a review and that application to review was granted on 2nd March 1994 and the review heard on 15th April 1994, the reasons for the review being promulgated on 9th May 1994.  Having initially found that the Applicant was unfairly dismissed, the Industrial Tribunal in its extended reasons after the review concluded that because the contract of employment was unlawful upon its face and was unlawful in performance, that the employee was not entitled to enforce it.  With reluctance therefore the Industrial Tribunal came to the conclusion that they were bound to so vary their original decision.

	The facts found by the Industrial Tribunal, so far as they are relevant for the present purposes, are that the Appellant was employed from August 1973 as a motor mechanic, achieving promotion to the position of service manager after about five years, in the garage business of the Respondent, of which Mr Georgiadias was a director and the majority shareholder.  The dismissal arose from the refusal of the Appellant to undertake additional work at short notice on a date on which the Appellant considered that he had already between 8 - 9 hours of work and did not have time to fit in another vehicle on that day.  The Tribunal found that Mr Georgiadias dismissed the Applicant without any kind of investigation, and they held that in many respects his evidence was not reliable.  The Appellant was paid a wage but in addition he received payments for training which he carried out under the Youth Training Scheme.  The findings of the Industrial Tribunal are these:-
		"(m)  The respondent company undertook training of young persons who wished to become mechanics and these were referred to them by an organisation known as A & B Training.  The respondent had been undertaking this kind of work for about 8 years and the employees received a salary under the Youth Training Scheme.  The applicant's case was that Mr Georgiadias told him that he could receive himself the payments made to the respondent by A & B Training because he was not able to give a salary increase to the applicant for the additional work of training these persons and he, Mr Georgiadias, would have the benefit of their work while they were training.  Initially the cheques came in made payable to the respondent and Mr Georgiadias paid the applicant in cash but according to the applicant Mr Georgiadias subsequently asked him to arrange for the cheques to be paid to the applicant direct because it was easier and would be better for tax reasons.  The sum involved was £10 per week.  Mr Georgiadias said that the applicant had no authority, either express or implied, to take this money and denied that he had ever given such sums to the applicant.  The payments were received from A & B Training in an envelope with their logo printed on it and this envelope came to the respondent's premises.  Mr Georgiadias said that he had never seen the logo and could not remember the enveloped although he might, perhaps, have seen them on occasion.  It was strange that Mr Georgiadias had not missed the money if he was entitled to it.  He knew of the existence of the payments and indeed signed the initial contract.  He said that when he signed the contract in 1991, he knew he was to receive £10 per week but did not think any more about it as he received no reminder.

		 (n)  It was also strange that on some of the documents with A & B the applicant had written himself wording to the effect that cheques were to be sent to him marked "private" and the respondent's case was that if it were true that Mr Georgiadias knew all about the arrangement, why would the applicant have to keep matters secret in this way.  It is true that in some of the documents requesting the cheques to be made payable to the applicant the writing was not his and possibly on those occasions the writing was that of a representative of A & B Training.  All of this was very strange but on the balance of probabilities the Tribunal preferred the evidence of the applicant to that of the respondent and considered that the two most significant points were the envelopes coming openly to the respondent's premises with A & B's logo and the respondent not seeking at any time to ascertain why the sums had not been paid to the respondent. ..."

	In consequence of these findings at the first hearing, counsel for the Respondent took the point on review that the contract was tainted with illegality and unenforceable.  In their extended reasons for their review the Industrial Tribunal found as follows:
		"4.  The evidence of the Applicant was that the Respondent company had undertaken youth training for A & B Training Ltd for approximately 8 years and the Respondent was entitled to receive £10 per week for each trainee to cover the cost of training.  The Applicant was to supervise and train the trainees.  He was permitted by the Respondent to have the payments because the Respondent could not give the Applicant a salary increase for this training and the Respondent would have the benefit of the work of the trainees.  Initially, the cheques were payable to the Respondent and the Respondent paid the Applicant in cash.  Subsequently, the Respondent asked the Applicant to arrange for the cheques to be paid direct to the Applicant because it was easier and, as the Applicant believed, also for tax reasons.  The sum paid to the Applicant was £10 per week.

		 5.  Thus, the Contract of Employment was varied to allow payment direct to the Applicant.  The Applicant's evidence that he believed the payment to be for tax reasons draws us to the conclusion that the tax benefits for the Respondent were that he did not have to declare the receipt for tax purposes and for the Applicant, that he did not suffer deduction of tax and National Insurance payments.  This is the inference we draw from this arrangement and in so doing we also take into account the Applicant's evidence of receipt of cash payments from the Respondent in respect of Saturday work.  In his evidence the Applicant says that his weekly pay included pay for 5 days and he received cash for the Saturdays he worked.

		 6.  The payments were regular in nature over a long period of time and the arrangement was clearly agreed to increase the Applicant's remuneration under his Employment Contract.  From the time of this variation of the Contract it took on an unlawful aspect on its face and therefore became enforceable from the time of the variation.  Even if the contract were not unlawful on its face, it would still be unlawful in performance.  The Applicant knew that the arrangement was to enable him to achieve an increase in salary by a clear sum of £10 without any deduction.  He was certainly a party to the agreement and entered into that agreement with full knowledge of the facts.  Whether or not he considered it unlawful is not a relevant consideration."

	Thereafter the Tribunal set out arguments advanced by counsel for the Applicant and conclude:
		"The Tribunal gave careful consideration to the contentions in this respect but could not draw inferences other than those which it had drawn.  With the greatest respect to the Applicant's counsel the Tribunal could not possibly lend any credence to an inference that the Applicant might have worked in a self-employed capacity.  It was the Applicant's case set out in his witness statement that the £10 payments were part of the arrangements for his remuneration.  Moreover, the Tribunal could not infer from the evidence of the Respondent that tax might have been grossed up and paid by the Respondent because the Respondent's evidence was that prior to the dismissal of the Applicant the Respondent had no knowledge of the Applicant receiving this money."

	Our attention has been drawn to the authorities upon illegality many of them helpfully summarised in Salvesen v. Simmons  [1994] IRLR 52.  We respectfully adopt the helpful summary of the law as set out by Lord Coulsfield in Annandale Engineering v. Samson [1994] IRLR 59.
		"... it seems to us that the position can be sufficiently expressed by saying that if an employee's remuneration is paid to him in such a way that some part of it is not subjected to deduction of tax, and if he knows, as a matter of fact, that that is the case, then whether or not the employee or the employer are aware of any illegality, the contract cannot be enforced.  So far as we are aware, however, in all the cases in which it has been held that the employee could not enforce the contract, the untaxed payment was one repeatedly made in such a way that it could be said to be a regular or normal part of the employee's remuneration. ..."

	On behalf of the Appellant five arguments were advanced.  First, that the contract was not illegal upon the face of it, secondly, that the phrase "better for tax reasons" was at best ambiguous and ought to have been so construed by the Industrial Tribunal so as to give effect to it as if it were a lawful contract, thirdly, that the Industrial Tribunal were not in law entitled to draw the inferences which they did, fourthly, that as a matter of public policy it does not automatically follow that an illegal contract is unenforceable, and fifthly, that in this case it was possible to sever the illegal part of the contract and that the Industrial Tribunal ought to have done.  Despite the adroit arguments of Ms Heal on behalf of the Appellant, there was in our judgment ample evidence upon which the Industrial Tribunal could find that this contract was illegal upon its face.  We cannot agree that the Industrial Tribunal drew impermissible inferences of illegality in the circumstances of this case.  We accept the proposition that where there are small occasional and irregular payments made to the employee by his employer without the deduction of tax that it does not necessarily follow that the contract of employment is unenforceable through illegality or indeed is a contract which is being illegally performed.  Plainly, each case must depend upon its particular facts and circumstances and in particular the degree of regularity and the amount of such payments.  However, we cannot accept that the Industrial Tribunal erred in their application of the law to the facts of this case: the Industrial Tribunal found that these payments continued weekly over a number of years.  The Industrial Tribunal had both the privilege and the duty of hearing the evidence and testing it.  Insofar as it has been suggested to us therefore that we have a better view than that of the Industrial Tribunal, we cannot agree.  We can detect no error of law in the approach of this Industrial Tribunal, and most certainly we cannot say that in any of the respects which are put forward, or indeed any other respect which occurs to us, that this Industrial Tribunal acted in a way or reached a conclusion that no reasonable Tribunal could have done.  The Industrial Tribunal pointed out that it was with some reluctance that they came to the conclusion that the contract was unenforceable because of the illegality adding
		"We have much sympathy with the Applicant but we are bound by the authorities to which we have been referred, ..."
and that if they found the contract illegal upon its face as they had done then they were unable to grant a remedy.  In our judgment their approach was correct and therefore this appeal must be dismissed.