Colen and another v Cebrian (UK) Ltd

JurisdictionEngland & Wales
JudgeLord Justice Waller,Lord Justice Carnwath
Judgment Date20 November 2003
Neutral Citation[2003] EWCA Civ 1676
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A1/2003/0379
Date20 November 2003

[2003] EWCA Civ 1676

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

HIS HONOUR J. ALTMAN

Royal Courts of Justice

Strand,

London, WC2A 2LL

Before:

Lord Justice Peter Gibson

Lord Justice Waller and

Lord Justice Carnwath

Case No: A1/2003/0379

Between:
Colen & Anor
Respondent
and
Cebrian (uk) Limited
Appellant

Jennifer Eady (instructed by Knight & Sons solicitors) for the Respondent

James Laddie (instructed by Hacking Ashton solicitors) for the Appellant

Lord Justice Waller

Introduction

1

This is an appeal brought with permission of Keene LJ from the decision of the Employment Appeal Tribunal (the EAT) dated 7 th November 2002. The EAT reversed the decision of an Employment Tribunal (the ET) dated 17 th July 200The ET had decided that the contracts of employment of the respondents (the Colens) were tainted with illegality, and that accordingly the Colens had no remedy either to enforce an alleged entitlement to commission due prior to their dismissal and no remedy for unfair or wrongful dismissal.

Background facts

2

In September 1995 the Colens (to whom where appropriate I shall refer individually as MC and AC) each brought a claim against the appellant company Cebrian (UK) Limited (Cebrian (UK)) for unfair dismissal, for damages for breach of contract, and for what are popularly known as "Wages Act" claims. This followed a breakdown of the relationship between the shareholders in Cebrian (UK) who were as to 52% the Cebrian brothers, 24% the Colens and 24% the Percivals (Mr Percival being AC's brother). That breakdown resulted in the Colens being dismissed in June 1995. The Colens also issued a petition in the High Court under Section 459 of the Companies Act 1985, and launched certain High Court proceedings with which the Section 459 proceedings were consolidated. While the High Court/Section 459 proceedings were being resolved the ET proceedings were held in abeyance.

3

In the High Court/Section 459 proceedings the history of the working relationship as between the Colens, the Percivals, the Cebrians, and Cebrian (UK), was explored in some detail. The judgment of His Honour Judge Boggis QC delivered on 17 th November 1999, sets out his findings of fact in that regard. That judgment reflects that from the outset the arrangement between Cebrian (UK) and the Colens and the Percivals was that each family would have a responsibility for different parts of the United Kingdom, and that a low basic salary would be paid to each family but that each family would receive a commission of 10% on sales in that section of the country for which each was responsible. AC and MC frankly state in statements before the ET, that when it came to actually making payments to the individual members of the families, payments were made in the manner most tax efficient to the individuals. No suggestion was made before Judge Boggis that anything was being done illegally. Judge Boggis traced certain changes in the commission arrangements. Evidently for a period from 1984 to 1988 it was agreed that the Percivals and the Colens should receive 5% from all sales, not simply from the sales for which each family was responsible. In 1988 however there was a reversion to 10% on the sales for which each was responsible. There was no issue before Judge Boggis as to whether those changes and in particular the change in 1988 was intended to vary the agreement in any radical way. Judge Boggis described this change in 1988 in the following way:

"In 1988 the commission system was changed again with Mr Colen and Mr Percival each taking 10% on their own sales. The purpose was to increase their own motivation"

4

The Colens were totally successful in their Section 459 proceedings. Judge Boggis held that the Colens had been wrongfully dismissed, and ordered the Cebrians to buy the Colens' shares for £150,000. He also dealt with certain points the subject of a counterclaim by Cebrian (UK), one of which related to the calculation of commission. In that regard the judge said this:

"There has been very little evidence about the terms on which commission was chargeable by the Colens and the Percivals. The best evidence I have been shown is a letter in Spanish dated 25 February 1982 which appears to set out Mr Percival's terms in connection with Tellime. It speaks of Commission on sales.

In my judgment, all of these elements of the Counterclaim fail. I have heard evidence that post and packing did indeed include a profit element. The medal cases were indeed sold to Cebrian SL which company made a good profit on them. I accept Mr Craig's submission that the commission was on sales not profit. So far as I can tell, there was no provision for the commission to be payable only once the customer had paid for the goods. It is true that Manolo and Paco Cebrian complained that the Percivals and the Colens were making too much money out of the company, but never was any complaint made about the way in which commission was calculated until long after both the Percivals and the Colens had left. If the complaint were legitimate it would have been raised much earlier. This part of the Counterclaim fails."

5

The judge's use of language at that stage would tend to indicate that he did not contemplate that there had ever been any significant change in the arrangement that commission should be paid to the Colens and the Percivals as a family as opposed to Mr Colen and Mr Percival individually, but nor it is fair to say would he have been considering that issue.

6

Following the conclusion of the Section 459 proceedings in November 1999, the proceedings before the ET were revived and Cebrian (UK) admitted liability. The proceedings were thus from 1999 concerned with remedies only. In June 2001 statements of MC and AC were served on those representing Cebrian (UK). They spelt out in detail the way over the years from 1982 to 1984 a basic salary was paid and how the Colens, and the Percivals, as a family received 10% commission on the sales in their particular area. MC's statement dealt with the changes thereafter in this way:

"The Cebrians had very little involvement in the business in the UK, despite being majority shareholders and left Ann and myself, together with Peter and Lynne, to run the business. Our basic salaries increased, but we always retained a low basic salary, with commission of 10% being paid on all sales. For a short while, between 1984 and 1988, we changed the system of commission so that each family earned 5% of commission throughout the country. Prior to that, and again after October 1988, we each had 10% commission on the sales in our particular areas. Sales in the southern area were usually about 60–65% of the total sales. As always, our commission was paid to the family, i.e. Percivals and Colens.

7

In paragraph 19 he said this:-

"At the time of my dismissal I was earning a basic salary of £12,600 per annum and Ann was earning a basic salary of £4,680. As already explained we shared the commission in the most tax efficient way as advised to us and some parts of the commission were used to pay for private health insurance. We also participated in a fine wine scheme whereby wine was purchased by the company on our behalf, and later sold. I understand this avoided the payment of national insurance contributions. I do not know all the details, but my understanding is that this was a perfectly legitimate scheme recommended by SDB Group and implemented by Dean Statham."

8

AC provided a statement consistent with that of her husband saying in paragraph 4:-

"Throughout the whole of my employment with Cebrian (UK) Limited, Manolo and I always shared income. We both had low salaries from the start and at the very beginning we took a joint salary of about £5,000.00 together with commission. We always arranged it so that commission was paid to both of us with it being divided in a tax efficient way. We were both working, and we both had low salaries and it was reasonable for each of us to receive some commission. My brother Peter Percival and his wife Lynne similarly shared commission in a way appropriate to them and this was the way payments were always made. The Cebrians had no involvement in the way payments were made and, at least initially, were just happy that the company grew in its turnover and profitability."

9

We were informed by Mr Laddie who appeared before us for Cebrian (UK), that it was following receipt of those statements that one week before the ET hearing those representing Cebrian (UK) took the point in correspondence that an issue arose as to whether "this contract was (or presumably these contracts were) tainted with illegality".

10

When the matter came on before the ET, the ET identified seven points in issue, and the reduction of the seven points to two in the following terms:

"For the sake of completeness, those seven points which we had to decide were as follows:

(1) the length of Mrs Colen's service;

(2) the method of calculating the commission;

(3) what has been colloquially referred to as the "split" in respect of the commission, i.e. whether the commission was due to Mr Colen or Mrs Colen or both;

(4) the length of notice to which each of the applicants were entitled;

(5) one of illegality, and whether this contract was tainted with illegality as being a fraud on the Revenue;

(6) holiday pay;

(7) the compensatory award in the unfair dismissal case.

The parties agreed that we should initially decide items (3) and (5) which are inextricably intertwined; the decision on (5) depended on our factual findings in respect of (3). We have to make findings of fact as to who was entitled to the commission...

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