Mairs (HM Inspector of Taxes) v Haughey (Northern Ireland)

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Griffiths,Lord Ackner,Lord Browne-Wilkinson,Lord Mustill,Lord Woolf
Judgment Date22 Jul 1993
Judgment citation (vLex)[1993] UKHL J0722-2

[1993] UKHL J0722-2

House of Lords

Lord Griffiths

Lord Ackner

Lord Browne-Wilkinson

Lord Mustill

Lord Woolf

Mairs (Her Majesty's Inspector of Taxes)
(Appellant)
and
Haughey
(Respondent)
(Northern Ireland)
Lord Griffiths

My Lords,

1

I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Woolf, and for the reasons he gives, I, too, would dismiss the appeal.

Lord Ackner

My Lords,

2

I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Woolf, and for the reasons he gives, I, too, would dismiss the appeal.

Lord Browne-Wilkinson

My Lords,

3

I have read in draft the speech prepared by my noble and learned friend Lord Woolf and for the reasons he gives I too would dismiss the appeal.

Lord Mustill

My Lords,

4

I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Woolf, and for the reasons he gives, I, too, would dismiss the appeal.

Lord Woolf

My Lords,

5

Mr. Robert Haughey contends that he agreed to forego his contingent entitlement to be paid a non-statutory enhanced redundancy payment in the event of his becoming redundant in return for the payment of a lesser sum of £4,506. The Inland Revenue treated that the lesser sum as being assessable to income tax under Schedule E for the year 1989/90 so Mr. Haughey was assessed in the sum of £23,242, which included the tax alleged to be payable on the lesser sum. He appealed against that assessment and was successful both before the Special Commissioner and the Court of Appeal in Northern Ireland in establishing that he was wrongly assessed in that sum of £4,506.

6

On this appeal to your Lordships' House the Revenue argued that the lesser sum, £4,506, which is part of a payment of £5,806, was paid to Mr. Haughey and accepted by him as an inducement to enter into new employment on different terms and conditions of employment from those on which he had previously been employed. These terms did not include any entitlement under the enhanced redundancy scheme (except for a two year transitional period). Neither the Special Commissioner nor the Court of Appeal considered that the payment was made for this purpose. However, the Revenue submit that in accord with the principles laid down in Edwards v. Bairstow [1956] A.C. 14 this is the only conclusion which as a matter of law it is permissible for a tribunal to reach as to the purpose for which the lump sum was paid and received and so this is a submission on which they are entitled to rely on this appeal. If the Revenue is correct in this submission then Mr. Park Q.C. for Mr. Haughey accepts that the appeal succeeds. If the Revenue fails and the payment was made for the purpose for which Mr. Haughey contends, then the Revenue still argue that the assessment was correct. Because of the Revenue's first argument it is necessary to set out the facts in more detail than would otherwise be necessary

7

The Facts

8

Until 8 August 1989 Mr. Haughey was employed by Harland and Wolff Plc. ("H. & W. 1") as a construction manager. He had been employed by the company for some thirteen years. H. & W. I had been in public ownership since 1975 and by 1989 its sole shareholder was the Department of Economic Development, Northern Ireland ("the D.E.D.").

9

Since 1988 the Government had been attempting to privatise H. & W.1. In March 1989 an agreement in principle was reached between H. & W.1, and representatives of the Olsen Group of Companies ("Olsen") and the D.E.D. which might, at last, enable privatisation to be achieved. A new corporate structure, including the creation of a holding company, Harland and Wolff Holdings Plc. ("H. & W.2"), with an operating subsidiary, Harland and Wolff 1989 Limited ("H. & W.3") was proposed. It was intended that 80 per cent. of H. & W.2's share capital (£12,000,000) would be funded by Olsen and that the majority of the remaining 20 per cent. would be subscribed by the management and employees in accordance with a management and employee "buy-out" arrangement.

10

It was intended that the new structure should be achieved in two stages; each stage involved the cooperation of the employees. First, a sufficient number of the employees whom the management wished to retain had to agree a transfer from H. & W.1 to H. & W.3 on new terms and conditions of employment. Secondly, the management and employee "buy-out" had to be implemented.

11

The employees of H. & W.1, including Mr. Haughey, had attractive contingent rights in a non-statutory enhanced redundancy scheme under their existing conditions of employment. This scheme was not independently funded and the D.E.D. had therefore to meet H. & W.1's obligations under the scheme as and when they arose. The scheme was intended to deal with the human problems arising from the contraction of the shipbuilding industry, by the provision of enhanced benefits to redundant employees. In the past there had been frequent resort to the scheme since in general it was as a result of redundancy that an employee's employment came to an end. It was not, therefore, surprising that the Special Commissioner made a finding that the scheme "was universally regarded by the employees as a matter of the first importance".

12

The proposed terms of employment would require the employees to adopt more flexible working arrangements. In addition the employees who were retained by H. & W.3 would have to give up their rights under the enhanced redundancy scheme. As a result of discussions between the management, Olsen and the D.E.D. it was envisaged that each transferred employee would be paid 30 per cent. of the amount which he would have received under the scheme had he been made redundant on 1 September 1989 and that the 30 per cent. would be made up to 100 per cent. in the case of any transferred employee who was made redundant within two years thereafter. The D.E.D. agreed to provide the £10,000,000 which it was calculated would just suffice to meet the costs involved and to meet the redundancy payments which would be payable to those employees who would not be offered employment upon the new terms.

13

When agreement in principle had been reached, the unions were informed and discussions took place between the management and the unions. In part those discussions related to changes in working practices. Here the Special Commissioner found that the differences between the parties "were resolved without great difficulty". The Special Commissioner also found that "much the largest bone of contention was the proposed loss (after a transitional two year period) of the benefits" of the enhanced redundancy scheme.

14

The employees of H. & W. were kept informed of the progress of discussions by leaflets entitled "Privatisation News". On behalf of the Revenue particular reliance was placed on the issue of 8 May 1989. That issue expresses the management's confidence that with the co-operation and commitment of the employees H. & W.3 had the potential to become a viable business with all that this implied for future employment opportunities; that H. & W.3 could not afford to maintain an enhanced redundancy scheme, but that statutory redundancy entitlement would remain. It then set out the position at the time in these terms:

"A New Start…

Since 1977 the enhanced redundancy payment scheme has been available to all H. & W. employees who are declared redundant.

As part of privatisation we have to review this and we wish you to understand the position.

Facts about the scheme…

The enhanced Shipbuilders Redundancy Payment Scheme was introduced in 1977 for a fixed period as part of a wider programme of rationalisation within the British shipbuilding industry. It was subsequently renewed on several occasions. The current H. & W. scheme, whilst having no fixed termination date, is not a permanent guaranteed right of employment.

Even while it remains, to receive the benefit of the scheme an employee has to be made redundant. It is not within an employee's power to choose whether they receive it or not. The company has to decide who will be declared redundant and when.

There is no pot of cash. It is not the same as the pension fund for which payments are set aside on a yearly basis.

No private shipbuilding company could afford to maintain such an enhanced redundancy scheme. This includes the companies privatised out of British Shipbuilders which have a similar scheme that terminates this summer. The new Harland and Wolff cannot afford to maintain such an enhanced scheme, but statutory redundancy entitlement will remain.

A New Deal…

In negotiating the buy-out with Government we requested, and ministers have agreed, that a 'Fixed Sum' should be paid to cover the costs of:

  • * making redundancy payments at the same level as under the enhanced scheme in the first two years of operation as a private company — there will be no loss of enhanced redundancy payment to anyone who has to be declared redundant within two years;

  • * financial recognition to all existing employees transferred to the new company for changes in working practices and conditions (including the ending of the enhanced redundancy scheme) that will be necessary to ensure competitiveness.

The 'Fixed Sum' can only be used for these purposes…

Company Proposal…

We have based our proposal on the experience of companies privatised from British Shipbuilders.

Subject to your support and as consideration for your acceptance of new employment terms we propose:

  • * to pay every employee a gross cash sum calculated at three tenths of the amount of the enhanced payment (the amount in excess of the statutory payment) which he or she would have received if declared redundant now. Everyone still employed at H. & W. will receive this, even if they are never declared redundant. The payment could be subject to income tax, but we are still investigating...

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