Smith v. Villa Owners Club Ltd [1991] UKEAT 524_89_1311

EAT
Smith v. Villa Owners Club Ltd
[1991] UKEAT 524_89_1311 · 1991-11-13
MR JUSTICE TUCKER ; This is an Appeal by Mr J H Smith against a decision of the Industrial Tribunal held at Bury St Edmunds on 30 August 1989 whereby they reviewed an earlier decision by them and awarded a reduced sum of £6,158 to the Appellant.The grounds of the Appeal are that the Appellant should have been awarded a sum of compensation free of tax. The Tribunal had deducted income tax at the basic rate of 25% from certain items of their award and had reduced it by the total sum of £1,980 in consequence.This case has a long history involving no fewer than four hearings before the Industrial Tribunal and two before the Employment Appeal Tribunal. It arose out of a dismissal of the Appellant by the Respondents, his employers, which the Industrial Tribunal found to be unfair. The Appellant had formerly worked on the Respondents' behalf on a self-employed basis. However, for two years during the period 1986 to 1988 he was in full time employment by then. He did two jobs - public relations manager and also manager of the brokerage division. At the end of 1988 the Appellant was dismissed. He made a claim to the Industrial Tribunal claiming that his dismissal was unfair. He could, of course, not have made such a claim had he been self-employed at the time of the dismissal. It could only be put forward on the basis that he was in full-time employment.A Preliminary Hearing was held by the Industrial Tribunal on 24 February 1989 to determine the question whether the Appellant had sufficient continuous employment with the Respondents to enable him to complain of unfair dismissal. That point was decided in the Appellant's favour.The subsequent three hearings were held by an Industrial Tribunal comprising the same Chairman and members on each occasion. The first of these was held on 18 April and 5 May 1989. The Tribunal held that the dismissal was unfair because of the Respondents' failure to consult the Appellant. They found that if there had been proper consultation, while the Appellant would not have been able to persuade the Respondents not to transfer his brokerage activities away, they might have left him the public relations work. The Tribunal said that that would have been a reasonable thing for a reasonable employer to do. They thought it fair to award the Appellant compensation for the failure to give him their personal public relations activities over a period of one year.The matter came before the Tribunal again on 14 July for the assessment of compensation. It was at this stage that some confusion occurred in the Tribunal's reasoning which has regrettably led to the subsequent hearings. In order to arrive at a proper basis for the award the Tribunal had regard to the payments made to the Appellant before he entered full-time employment with the Respondents. Because of this they were at first of the view that the award should be made gross of tax:
"..since the compensation is envisaged in the circumstances that Mr Smith be employed as an independent contractor - as he was before he became a full time employee of the respondents on 1 January 1987."
But the Tribunal went on to say that:
"On reflection, we have realised that awards ought not to be taxable. Accordingly an amount representing basic tax should be deducted from the compensatory element."
It is not entirely clear from this decision whether the Tribunal were awarding compensation on the basis of a reduced employment only as public relations manager, or on the notional basis of self-employment. But this problem is resolved we think by what the same Tribunal said on the next hearing on 30 August 1989 which constituted a review of their earlier decision.On this occasion they stated this at para.3 of their Reasons:
"Notionally, Mr Smith would have been paid this sum gross, if he had not been dismissed in the manner in which he was dismissed, as a self-employed person carrying out the respondents' public relations activities."
It is clear from this passage that the Tribunal were intending to calculate the loss on the basis of self-employment. That being so, were they correct in their decision to deduct tax when no such deduction would have been made had the Appellant been employed on that basis? We think not. In the ordinary cases which come before the Tribunals, where an Applicant has been in the nature of things an employed person, his compensation is assessed on that basis; that is to say on the basis of him continuing to be employed. It is entirely correct in such cases to make the award net of tax. But in the peculiar circumstances of the present case a very different situation arose. This was because, for reasons which seemed good to them and which we are not in a position to review, the Tribunal chose to approach their task of calculating the loss on a different, (and in our experience unique) basis. This was that the Appellant would or should have continued to work for the Respondents on a self-employed basis. In that hypothetical situation he would have been paid without deduction of tax.Accordingly we are minded to allow this Appeal and to direct that the award should be paid without the deductions of 25%. We do not regard this decision as being in conflict with the provisions of section 74(1) of the Employment Protection (Consolidation) Act 1978 which is in these terms:
"Subject to sections 75 and 76, the amount of the compensatory award shall be such amount as the tribunal considers just and equitable in all the circumstances, having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer."
Nor do we regard our decision as being in conflict with that of the House of Lords in the well known case of BRITISH TRANSPORT COMMISSION v GOURLAY (1956) AC 185 . And it seems immaterial to us that at this stage, nearly three years later, the Appellant is in employment. Nor do we regard our decision as being in conflict with the decision of this Tribunal in the case of TRADEWIND AIRWAYS LTD v FLETCHER (1981) IRLR 272 . We look in particular at the decision at para.7 which says in these terms:
"Now on normal general principles, what you lose is not the gross, it is the difference which you would have otherwise have put into your pocket, and that calculation clearly has to be made net of tax. It is to the answer that you properly arrive at net of tax that the Industrial Tribunal has to apply the various imponderables which it did its best to apply in this case, and was right to try to apply as best it could, but it is to the net difference that it must be applied."
We emphasise that in the ordinary run of cases that is entirely right. That is the correct approach for the Tribunal to make. We are not laying down any broad principle. This case is not to be cited as any precedent. This case is decided on its own very peculiar facts and as we have stated, upon a situation which in our experience is quite unique. But the Tribunal's findings of fact and their basis of calculation cannot be criticised and are not criticised, and as we have indicated it is not open to us to review the approach which this Industrial Tribunal chose to adopt in calculating the loss. Having chosen to adopt that method it was in our view wrong of them to make the award as they did, net of tax. We leave it to the parties to calculate what should now be done. The award made as reviewed by the Tribunal will be the one upon which the grossed up sum must be paid, that is to say the sum of £6,158.Whether or not the Inland Revenue Authorities will seek to recover the tax element now to be included in the award is not for us to say. We make no observation about that.