MR N VIMALANATHAN v MRS ANN THOMAS T/A A THOMAS & PARTNERS [2002] UKEAT 1249_01_0105

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2002] UKEAT 1249_01_0105

Case No Appeal No. EAT/1249/01

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

MR N VIMALANATHANAPPELLANT

MRS ANN THOMAS T/A A THOMAS & PARTNERSRESPONDENT

Before

Mr Justice Wall Mrs A Gallico Mr S M Springer

Date 1 May 2002

[1]APPEARANCES For the Appellant MR G WOOLRIDGE (of Counsel) Instructed by: Bernard Mendis & Co Solicitors 109 Bell Street London NW1 MR JUSTICE WALL This is the preliminary hearing of an appeal by Mr Vimalanathan against the Decision of the Employment Tribunal sitting at London Central on 18 July 2001. The application which was made by the Appellant by his form IT1, dated 30 March 2001, was that he had been employed as a finance manager by a solicitor, Mrs Ann Thomas, trading as A A Thomas & Partners, in Willesden.

[2]His case was that from 1 January 1999 he had been employed on a salary of £2000 a month, but that Mrs Thomas had failed to pay his salary from April 2000, claiming that she had cashflow problems. He then says in about January 2001 she decided to close down her office, as she did not want him to work for her any more and she promised to pay arrears of salary, but failed to do so.

[3]Mrs Thomas's answer was that there never existed an employer/employee relationship between the Appellant and herself and, accordingly, that the Tribunal had no jurisdiction to entertain his claim. She asserted that he had his own full time business at the premises she occupied, and she produced a piece of paper indicating that at that address, Nathan & Co were carrying on business as commercial residential sales letting and property developers. She says that the Appellant occupied her property on terms, including an agreement to look after the financial affairs of her practice on a self-employed basis. He had never been her employee. Mrs Thomas did not appear before the Tribunal which accordingly did not hear evidence on her behalf. The Tribunal heard however, from the Appellant, and from a friend, whom he introduced to Mrs Thomas with a view to providing financial assistance.

[4]The Tribunal, having heard the evidence, went on to make the following findings: firstly that the Appellant was a certified accountant and joined Mrs Thomas's practice as a business manager/financial adviser. It appeared that he was in previous employment and gave Mrs Thomas his form P45, but she did not pass that on to her accountants. The Tribunal found that the terms of the Appellant's engagement were set out in an agreement which was entered into on 20 October 1999 between Mrs Thomas, the Appellant and the friend, and also the Appellant's wife. They described the document, in our judgment with some reason, as an extraordinary one, since as they described it:

" the Respondent [Mrs Thomas] would pay a salary to the Appellant [Mr Vimalanathan] to act as business consultant to manage the business of A Thomas & Partners, a solicitor's practice, at a salary of £15,000 per annum net. The agreement then provided that the Respondent would draw [herself] a monthly salary at an increasing rate starting at £2,000 per month net and Mr Vimalanathan having procured [the other two parties] as investors to invest the sum of £30,000 in the business, the profits were to be apportioned among the three parties as to 30% to Mrs Thomas, 40% to the investors and 30% to [the Appellant]. After 4 years the goodwill of the business was to be valued and the net profits divided in the same proportions. That document was signed by all parties and witnessed on 20 October 1999. It also provided that Mrs Thomas and Mr Vimalanathan should be joint signatories on the business office (current) bank account although Mrs Thomas was to be the sole signatory on the business client account."

[5]The Tribunal then went on to find that:

" Mrs Thomas had financial and personal problems including a divorce and appeared to get into serious financial difficulties during the course of the Applicant's engagement."

They then go on to make this important finding:

"While she withheld tax and national insurance contributions from the salaries of staff she failed to account for those sums to the Inland Revenue. She also did this in respect of the salary of Mr Vimalanathan [the Appellant]. He as a certified accountant was well aware of the impropriety of this practice and advised her that she should account to the Revenue for the monies which she withheld from wages. However she failed to do so. He also gave evidence that Mrs Thomas frequently paid her personal debts by drawing cheques on client accounts and paying the money into her office account, then drawing cash against those cheques in order to pay her personal expenses and liabilities. Mr Vimalanathan [the Appellant] told us that he prepared all the papers in order to draw up the firm's account and send them to an independent firm of accountants called Dosie & Co. There was an unsigned statement from Mr Dosie before the Tribunal confirming that he dealt with Mr Vimalanathan [the Appellant] whenever he had to contact the firm in respect of his professional work."

The practice, carried on by Mrs Thomas, was not successful and in about August 2000, the bailiffs arrived at the premises and the Tribunal found that the Appellant gave the bailiffs his personal cheque for a little under £2,500 in satisfaction of arrears claimed.

[6]One of the investors told the Tribunal that she had not only advanced £30,000 to Mrs Thomas to help her with her business but she made further loans so that the total indebtedness of Mrs Thomas to this lady was nearly £60,000. Matters finally came to a head at the end of January 2001 when the Respondent suffered an inspection of the office by the Office for the Supervision of Solicitors and the business was closed down overnight.

[7]The Tribunal then looked at section 230 of the Employment Rights Act 1996 and reached the followed conclusions. "(1) The Appellant was engaged by the Respondent as a business consultant/financial manager from January 1999. At that time he was probably engaged as an employee rendering services on a full time basis but if not, then at least as a "worker". He rendered his services exclusively to the Respondent and he had no other 'client or customer' to whom such services were rendered. He was paid subject to deduction of tax and it would therefore appear that he was well within the definition of 'worker' under section 13 of the Act. (2) In October 1999 Mr Vimalanathan [the Appellant] entered into a form of partnership agreement with Mrs Thomas and the investors. That agreement provided for the division of profits of the solicitors' practice A Thomas & Co, which agreement certainly appears to us to be illegal if not criminal in its objectives. (3) Mrs Thomas regularly deducted tax and national insurance from the wages of staff and Mr Vimalanathan [the Appellant] but failed to account for those deductions to the Inland Revenue. Mr Vimalanathan [the Appellant] as an accountant, knew that this practice was illegal and although he advised Mrs Thomas against it he does not appear to have taken any action to require her to pay the contributions over to the Revenue or to notify the authorities of these illegal practices. Indeed it appears to us that he condoned the action. (4) Mr Vimalanathan [the Appellant] was aware that Mrs Thomas was paying creditors and personal expenses by drawing from her solicitor's client account. Here again while he may have advised her (if she needed such advice) that this was a breach of the Solicitors Accounts Rules, he took no action to prevent her from doing so. As a member of the Association of Certified Accountants Mr Vimalanathan [the Appellant] was under a duty not only to warn Mrs Thomas of the consequences of her actions but himself to take action by notifying the proper authorities as to the illegal activities of his partner/principal. Instead, he did nothing and allowed the situation to continue unabated. (5) Although Mr Vimalanathan [the Appellant] told us that Mrs Thomas failed to pay his salary for some 9 ½ months, he produced evidence to show that he had paid his personal cheque of £2,498.22 to bailiffs in order to satisfy a warrant for non payment of business rates. There is another document showing that he signed a statement from the bailiffs in relation to a subsequent walking possession. 11 All of these actions indicate to us that from October 1999 onwards Mr Vimalanathan [the Appellant] was not an employee or a worker of the Respondent but that he was a business partner of hers. The relationship between the parties was seriously tainted with illegality in respect of the matters referred to above and as such the Tribunal cannot entertain this application which is therefore refused."

[8]We have had the benefit, as I say, this morning of a Skeleton Argument and oral submissions from Mr Woolridge. Mr Woolridge concedes that the Tribunal was right to find the agreement of 20 October 1999 illegal although he seeks to argue that a blue pencil can be put through the majority of it, leaving intact and lawful the original agreement between the Appellant and Mrs Thomas for the payment of a salary under a contract of employment. He says that the Tribunal were wrong as a matter of law to find that this was a partnership agreement, so far as the Appellant was concerned and that the additional benefits due to the Appellant under the contract of 20 October 1999 were simply additions to the salary due to him as a result of the agreement for initial employment, with effect from January.

[9]It seems to us that the Tribunal, having considered the matter carefully was plainly entitled to take the view that the agreement of 20 October was a form of partnership agreement and unlawful, but even if that was wrong and even if that point were to be thought arguable, it seems to us that the Appellant's contractual relationship with Mrs Thomas is throughout so tainted by illegality that it would be inequitable for the Appellant to be entitled to succeed on it.

[10]I have read out, in full, the findings of the Tribunal. Here was what appears on the face of it to be a plain attempt to defraud the Inland Revenue of monies due to it, and deducted by Mrs Thomas from salary. Furthermore, here is, as the Tribunal found, the Appellant condoning the actions taken by Mrs Thomas in paying bills out of the client account It is, of course, the case, as Mr Woolridge argues, that not every element of illegality in a contract necessarily is fatal to the success of a party who seeks to sue upon it; it frequently depends on the state of knowledge of the party in question, the role of the party in question and the degree of illegality, but in our judgment, both agreements between the Appellant and Mrs Thomas, the initial agreement for employment, and the agreement entered into on 20 October are so tainted with illegality, in relation to the professional relationship between the Appellant and Mrs Thomas that it would be quite wrong, in our judgment, for the Appellant to be entitled to succeed on them.

[11]In these circumstances it seems to us that the Tribunal reached entirely the right conclusion in this case and that any contrary conclusion is unarguable. Accordingly, the appeal will be dismissed at this stage.