Heffer v SOS For Trade & Industry & Anor [1996] UKEAT 355_96_2509

EAT

Heffer v SOS For Trade & Industry & Anor

[1996] UKEAT 355_96_2509 · 1996-09-25

JUDGE HICKS Q.C.:

Mr Heffer, the Appellant, had worked in the business concerned in this case from as long ago as May 1956, in various capacities under various ownerships and managements. In brief, from 1967 onwards, when there was a sale to a private buyer and he became general manager, there was a progression of his status to become a Director in 1969/70. In 1973 there was another sale - I use the word "sale" without going into any detail, and indeed the Industrial Tribunal's findings go into no great detail as to what form that transaction took - of some kind to a company and Mr Heffer became the Managing Director. In 1985 there was a further sale to a group called the Willhire Group and he apparently ceased to be a Director but continued as General Manager. Finally there was what is described in familiar terms by the Industrial Tribunal as a management buyout in 1990, led by Mr Heffer himself. which left the business in the hands of a limited company, one of the Respondents to this appeal, although one not taking any part in it.

Immediately, when that management buyout took effect, Mr Heffer's position was that of dealer principal with 60% of the shares. By June 1995 he had about 70%. There was no written contract of employment and the affairs of the company were, in effect, conducted entirely by Mr Heffer and a co-Diretor, who was also the other principal shareholder, and of course as a 70% shareholder he had practical control of the affairs of the company. It failed financially and as a result its affairs were taken over by a receiver and he was discharged.

The present dispute is, in substance, between Mr Heffer on the one hand and the Department of Trade & Industry on the other, because of the Department's responsibility for the redundancy fund, which may be liable for redundancy payment if the employer is unable to satisfy a redundancy payment obligation. The issue between Mr Heffer and the Department is necessarily the same as the issue which would arise between Mr Heffer and the company if the company were taking an active part in opposing his application, namely: was he an employee within the meaning of the Employment Protection legislation? The Industrial Tribunal found that he was not.

It is apparent from the reasons of the Tribunal that the way in which the matter was debated before the Tribunal centred on the question whether Mr Heffer's controlling interest was such that he really was in control of the affairs of the company or whether, as he contended, the company was really at the behest of the will of the manufacturer, the Ford Motor Company (because the business was that of motor dealers) and of the financiers who had provided the money which enabled the management buyout to take place. The Tribunal say in paragraph 5 of their decision:

"... The real point which is made on the part of the applicant - who doesn't deny that was 70% controlling interest and had the dominant control within the corporate structure - is that that control was really at the behest of the will of the manufacturer, Ford, and the Financiers. ...There is nothing about that relationship which is different from the relationship which any corporate body has with its backers." [That is in relation to the financiers.]

They also go on to deal with the relationship of the company as dealers with the manufacturers.

The appeal, which has been most helpfully argued by Mr Evans, proceeds on this basis - and we hope we do justice to it - first that the management buyout, Mr Evans says, was plainly a transfer of undertaking within the scope of the Transfer of Undertakings Regulations secondly and at that date of that transfer of undertaking Mr Heffer was plainly an employee of the Willhire Group or some company within that group, and that he says is indeed plain from the findings of the Industrial Tribunal. Therefore, thirdly, Regulation 5 of the Transfer of Undertaking Regulations applied and that employment continued under the Respondent company on identical terms. Therefore, fourthly, the issue before the Industrial Tribunal was really whether anything had happened to abrogate that relationship of employment. Since they make no finding of any fact which did abrogate it Mr Heffer remained an employee down to the date of the insolvency and was entitled to his redundancy payment.

We have come to the conclusion that that appeal fails for two reasons. The first and indeed sufficient reason is simply that this point was never raised before the Industrial Tribunal, they therefore had no opportunity of dealing with it and their decision cannot be impugned as erring in law when they failed to answer a question which they were never asked. Mr Carr for the Respondents has reminded us of the authority of Kumchyk v Derby City Council

[1978] ICR 1116

. It is a decision of this Employment Appeal Tribunal, and therefore not strictly and inescapably binding upon us, but it has stood since 1978 and been followed and applied, as we understand it, on numerous occasions since, and in our view is the settled law on the subject. We entirely understand the force of Mr Evans' submissions that it lays down a somewhat harsh and unyielding view, especially when, as in this case, the application before the Industrial Tribunal was conducted by the Applicant in person. We are satisfied, however, that it represents the law and practice of this Appeal Tribunal and should be followed. The Employment Appeal Tribunal in that case explicitly dealt with the problem of a situation where the representation below was not professional or experienced, and deal with that among other grounds upon which they say it is not enough to over-turn the general principle. They say this:

"It certainly is not enough in our judgment that the point was not taken owing to a wrong or what turns out in the light of after events to have been a wrong tactical decision by the appellant or his advocate and certainly not enough that the admission was due to the lack of skill or experience on behalf of the advocate. It would certainly not we think be enough that the omission could have been made good had the Industrial Tribunal chosen to suggest the point for consideration to the appellant or his advocate."

The way in which that principle impinges on this case is readily illustrated by considering what would have happened had the point now taken by Mr Evans been taken in the Industrial Tribunal. First of all the Industrial Tribunal would have had to find whether the management buyout, as they call it in general terms, was in fact a transfer of undertaking within the regulations or not, itself a highly technical question - one which we are not in a position to answer, and one on which the Tribunal cannot be said to have erred because their mind was not directed to it. Secondly, even if they had found that there was a transfer of undertaking within the regulations, they would have had to go on to consider whether what happened as between Mr Heffer and the company, both in terms of the change of control in its own right and secondly as to the use made of that change of control, either in leaving relationships as they were, or in altering them, how all those matters impinged on the contract of employment, continued at least for a scintilla of time by Regulation 5. They do not approach the matter in that way. That of course is Mr Evans' criticism. But they did not err in law in failing to approach it in that way because they were not asked to. It is perfectly possible that had they done so they would have arrived at the same disposal of the application as they did arrive at. It is quite impossible for us to say whether they would or would not. If that failure and error had been one which was to be laid at their door then of course that failure on their part to find the consequential facts would have to be cured by sending it back to them to do so. But if their failure to do so was not an error of law on their part but a consequence of the way that the matter was presented, then there is no ground for interfering with their decision at all. That is our first and, as I say, in itself sufficient reason for dismissing this appeal.

Secondly, we have been referred to the decision of this Employment Appeal Tribunal, presided over by the then President Mr Justice Mummery, in the cases of Buchan v Secretary of State for Employment and Ivey v Secretary of State for Employment , in which judgment was delivered covering both cases in July of this year. It is plain that that judgment sets out to address this whole area of the law, that is to say the test for whether an applicant is an employee when the applicant is a controlling shareholder of the respondent company, and to lay down guidelines. It is clear that that was done because there have been differences of opinion and decision by Industrial Tribunals on the subject. It is also clear that the Employment Appeal Tribunal hoped that the matter would be resolved, not just by the guideline decision which they themselves handed down, but also by a decision of the Court of Appeal. For that reason they gave leave to appeal and we understand that in one of the cases that leave has been taken up and an appeal is pending.

It is clear that the way in which the Employment Appeal Tribunal approaches this question in the way of general principle is, having accepted that for the purposes of general contract law a shareholder can be an employee of a limited company of which he/she is the controlling shareholder, then to go on to consider as a matter of policy whether that creates an employment relationship for the purposes of the Employment Protection legislation. I say that that is addressed as a matter of policy because that is expressly the way in which it is put in at least two passages in the judgment, and also because that approach becomes quite starkly explicit when the judgment deals with the case of Lee v Lee's Air Farming Ltd

[1961] AC12

, a decision of the Judicial Committee of the Privy Council in a case where there was a claim in tort by a governing director and shareholder against, as it were, his own company, for compensation under the New Zealand Workers Compensation Act 1922. The Employment Appeal Tribunal in Buchan & Ivey v Secretary of State says in terms, if we may paraphrase, that where there is a claim in tort which will be met under insurance arrangements, the policy considerations in deciding whether the relationship was that of a contract of employment are quite different from, and in fact opposite to the policy considerations which apply when deciding whether a controlling shareholder is an employee for the purposes of employment protection legislation, having regard in particular to the fact that in circumstances such as those of Buchan & Ivey and the present case, the responsibility for satisfying any compensation awarded will fall not on the company itself but on the public purse.

We understand the force of those considerations and our position in relation to that decision of the Employment Appeal Tribunal is that independently of our first ground we would in this case follow it. We would follow it in any event as being a carefully considered decision intended to lay down guidelines from which we would not depart unless quite sure that it was incorrect, which we are not. One or more of us would, in any event, have reached the same conclusion whether or not it had been expressed by the Employment Appeal Tribunal in Buchan & Ivey v Secretary of State , but we need not go into the question whether that is the considered judgment of all or a majority of us, because it is not a necessary ground of our decision, which is reached for the reasons already expressed.

We have decided that this is not a case in which to grant leave to appeal. Assuming that we have jurisdiction to deal with both points separately, then our reason for not granting leave on the Buchan & Ivey point is simply that standing alone it is of no use to the Appellant. So far as the Kumchyk point is concerned this, in our understanding, is really of an extremely well-settled line of authority, and we think that if it is to be questioned it is for the Court of Appeal to decide whether or not that should be done and not for us. Taxation granted. There will be an order for taxation of Legal Aid costs.