Appeal No. EAT/460/93

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 14 December 1994

	Before

	HIS HONOUR JUDGE HULL QC

	MR K M HACK JP

	MRS P TURNER OBE

R L HAWKSBY	APPELLANT

SECRETARY OF STATE FOR EMPLOYMENT	RESPONDENT

	Transcript of Proceedings

	JUDGMENT

	FULL HEARING

Revised

	APPEARANCES

For the Appellant	Mr Nicholas Cox
(Of Counsel)
Free Representation Unit
Room 140
1st Floor
49-51 Bedford Row
London WC1R 4LR

For the Respondent	Mr Robin Tam
(Of Counsel)
The Treasury Solicitor 
Queen Anne's Chambers
28 Broadway
London SW1H 9JS

	JUDGE HULL QC:   In this case, Mr Hawksby appeals to us against the Decision of the Industrial Tribunal sitting at London (North) on the 21st April 1993 under the Chairmanship of Mrs Prevezer.  

	Mr Hawksby, on the failure of the Company concerned, of which he was or purported to be an employee, had applied for a redundancy payment on the usual basis that it was a claim made against the Secretary of State.  It was defended.  The Secretary of State appeared, and the Tribunal had to decide whether Mr Hawksby was entitled to make the claims that an employee may make on the failure of his Company, under the appropriate parts of the Employment Protection Act.

	Various documents were shown to the Industrial Tribunal because Mr Hawksby maintained that he was, although 99% the owner of the company, in truth an employee, and as the Industrial Tribunal correctly directly themselves, they had to look at the reality of the matter.

	There was a contract of employment produced to them at which they looked, amongst the other documents.  That is not with our papers, but it has been sent to us and we are quite content to look at it.  It is a document dated 14th February 1992 and says it sets out the conditions which form the contract of employment on which Kerion Associates Limited [that is the company] employs Ronald Lawrence Hawksby in the capacity of Director, Sales.  This is slightly odd language because a Director is not "employed" as a Director, a Director is an officer of the company; but of course he may, and very often does, have an executive job in the company and is probably an employed person.

	The document says that the director's duties will include those normally expected of a person holding such a position, together with any additional duties determined by the Board of Directors of the company from time to time.  It sets out the salary; £216.34 paid weekly.  It is to be reviewed annually.  The hours of work will be 9 a.m. to 5.30 p.m., with an hour daily for lunch.  The director will obtain the agreement of the other directors before implementing major changes.  There is to be four weeks holiday.  Holidays will be taken only at a time convenient to and with the full agreement of the other directors.  There was only one other director apparently, Mr Hawksby's wife.  Then there is a grievance procedure.  If a director wishes to raise any grievance relating to his/her employment, and he/she cannot reach agreement with the other directors, independent advice should be sought, presumably from a solicitor skilled in matrimonial disputes.

	But there it is.  That is signed by both Mr and Mrs Hawksby.  Then it ends on a rather curious note.  A contract, of course, is a document which contains reciprocal promises or undertakings.  Statements of fact are not part of a contract, although they may found estoppels as was pointed out by Lord Diplock, a good many years ago.  

	At the bottom is a note:  

		"This document differs from that of 1st August 1971 only in respect of the amount of salary."

That note is inserted there.  I mention that because something is made of it by Mr Cox in his submissions to us.  

	Mr Hawksby gave evidence, and the evidence starts at page 16.  He refers to the contract of 1992.

		"My wife signed the contract.  Mr Shand [who apparently put up some money] left in 1971 and Mrs Hawksby became a Director in 1971.  I haven't got my earlier contract of employment.  My previous salary  [that must mean before 1992] was what the company could afford to pay.  Then in 1992 there was an injection of capital and I got a salary of £11,250 per annum.  Everything in this new contract was the same as in the 1971 contract.  My salary was paid PAYE."

And he gave other evidence and was cross-examined.

	The Industrial Tribunal had to decide the matter, because it was resisted, and it was suggested that Mr Hawksby was not in truth an employee of the company, in the realistic sense, looking at in the light of the evidence.  The Tribunal in their Decision set out that they have heard Mr Hawksby and they say that the company operated from the parties' home.  Although they had not applied for planning permission for business use or made any of the payments under the rates, or applied for any relief under the rates, in respect of their business use.  

	In paragraph 4 they say:

		"4.	The Applicant submitted that he had a contract of employment and he produced a contract of employment dated February 1992 which was in similar terms to an earlier contract that he had had except for the amount of his salary.  He was not able to produce to us a copy of the earlier contract.

		5.	The Applicant stated that he paid his income tax, national insurance on PAYE basis and that the reason why the department of Social Security record showed that no contributions had been paid since 1975 was because their remuneration had always been below the threshold level.
		6.	The Applicant produced to us various company reports and accounts and minutes of meetings and he variously referred to "Directors salaries" or "Directors remuneration".

		7.	From all the correspondence that was produced - it appears to us that the company operated from 42 Noel Drive, Southgate so it is odd that we conclude the letter of dismissal which each director wrote to the other on behalf of the company bears the address of the registered office at 80-83 Long lane, London EC1.  There was a discrepancy in the dates contained in those letters and those on the application to the redundancy fund and also there was confusion in the evidence that the Applicant originally gave relating to the share holding.

		8.	We were referred to various authorities by both parties and we are aware that we have to look at the reality of the situation and the facts as they are presented to us.

		9.	On the question of whether Mr Hawksby was employed under the contract of employment as a director we conclude from the facts that the Applicant was not employed under the contract of employment until February 1992 when there was an injection of capital.  We conclude that this contract was drawn up to satisfy the person who had advanced the capital paid, before that time there was no evidence that there was contract of employment and that the Applicant was an employee.

		10.	We were referred to the authorities whether a director can also be an employee and have considered the cases referred to us and although we accept that it is possible for a director to be an employee of the company we find that in this case this was not so.

		11.	From the evidence we conclude that the reality of the situation was that after Mr Shand (the original Director) left the company, the Applicant continued the business from his home with his wife who helped with the administration, typing and answering the telephone.

		12.	To satisfy the Companys Act, he made his wife a director and gave his wife one share.  Although they produced formal accounts and appear to have produced minutes of director's meetings we are not convinced that these were contemporaneous documents with the events that they purported to minute.  It is apparent that they managed their financial affairs so that the remuneration was below the threshold on which tax and National Insurance would be payable under the PAYE system and it is clear that the control of the business was solely in the hands of Mr Hawksby.

		13.	We conclude that the Applicant was not an employee but that his status was that of a director running his own business, any remuneration that was paid was paid in his capacity as a director and was a director's fee.  We conclude therefore that as he was not employed by the company we have no jurisdiction to consider his claim for redundancy and his application fails."

	On the face of it, therefore, they had looked at the reality of the situation, having told themselves they must do that.  They had looked at the so-called contract of employment, which we also have looked at.  They said that the reality of the situation was that this was a one-man company in which the proprietor employed his wife to help him in certain ways and made her a shareholder and director with him to satisfy the Companies Act.   

	It is perfectly correct, as is pointed out to us by Mr Cox, to whom we are very grateful, that if you treat this contract of employment as being entirely a genuine document, not merely as being of course signed by the people it is signed by, but as representing the reality, the bona fide intention of the parties, then it is undoubtedly a contract of employment; although there are various criticisms and comments which can be made on it.  

	When you look at the findings of the Industrial Tribunal, it is quite plain, in our view, that they do not accept that it is a genuine document in the full sense.  We note comments which they make about, for example, the disparities between documents; the fact that the previous contract had not been produced; and a number of other matters.  These show that they are not in fact accepting that proposition.  They found that the reality was otherwise.  When one looks at the Contract of Employment, not merely was that a possible conclusion, but indeed it is a probable one.  This was a company so small, so limited in its operations, that its revenue apparently, in none of the previous years, had been large enough to cross the thresholds in the respect of National Insurance and such matters.  The Contract provides that the director is to work from 9 a.m. to 5.30 p.m with one hour daily for lunch, in his own home.  One is not saying that that is impossible, but it seems monstrously unlikely in the circumstances.  One couples that with the Tribunal's comments that documents produced are not genuine contemporaneous documents of meetings, and so forth.  One looks at their comments on the discrepancy in dates, confusion over matters relating to shareholders and so on.  These were comments which were entirely irrelevant if the Tribunal felt able to accept the contract as showing what the true position was.  In fact they were looking into the genuineness of the whole situation, and finding as they did.

	Why should they say "This contract only came into existence to satisfy a person who had advanced capital"?  The only relevance of that is to the question whether the contract represented reality or whether it was, indeed, a sham, in the sense that it had no actual reality, but was intended merely to impress a person who had advanced money and perhaps served useful purposes in the event of insolvency, but did not represent the reality of the transaction between the company and Mr Hawksby.

	They were, as we say, embarking on the inquiry which they were not only entitled to make, but bound to make in the circumstances, as to the reality of the situation.  It is true, as pointed out by Mr Cox, that in one place in paragraph 9 they seem to be saying that the Applicant was employed under the Contract of Employment after February 1992.  In those circumstances, he said, you must look at the contract and the contract contains this reference to it being on the same terms, differing only in respect of salary, from that of the 1st August 1971.

       There are various answers to that and, of course, the question whether it is a genuine document in the full sense is one matter which has to be considered; but then again, this note is not part of the contract as a contract.  It is simply a note which is made on it, and therefore it has no more standing as being a piece of writing than any other piece of writing or other piece of oral evidence.  It might be taken to be some evidence that there was a previous contract, but that, they say, could not produced.  When one looks at the evidence it seems that there was no proper explanation given of the failure to produce that alleged original contract.

	Mr Cox said that they do not find that this is a sham, expressly.  They do not find that they are not being told the truth.  The answer is that it was for Mr Hawksby to satisfy them, on balance on probability, of the genuineness of his employment by this very small company.  So far from finding that, they found the reality was that it was a one-man company and in the nature of a partnership between the husband and wife, and such a conclusion was not only open to them, but in our view, having looked at the documents, and tried to refrain from making any findings of fact ourselves, it seems to us, not merely likely, but almost inevitable.  It is not up to us to say whether they were correct or not.  It is up to us to say whether any error of law is shown by the Decision.

	Having looked at it as carefully as we can, and all of us having seen a good many such cases from time to time here, this appears to us to be a case in which it was perfectly open to the Industrial Tribunal to find that this was, in reality, a case of a gentleman running his own business with his wife, not an employee of anybody and certainly not an employee of the company.  And there is certainly no error of law on the face of their award; nor indeed, in our view, is any other error law shown in the way they approached their task and carried it out.

	In those circumstances, we have to say that this Appeal must fail.  It is dismissed.