SCA Packaging Ltd v HM Customs & Excise
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE LIGHTMAN,Mr Justice Lightman |
| Judgment Date | 22 February 2007 |
| Neutral Citation | [2007] EWHC 270 (Ch) |
| Docket Number | Case No: CH/2006/APP/0500 |
| Court | Chancery Division |
| Date | 22 February 2007 |
[2007] EWHC 270 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Lightman
Case No: CH/2006/APP/0500
Mr Kevin Prosser QC and Mr Clive Sheldon (instructed by Clifford Chance, 10 Upper Bank Street, London E14 5JJ) for the Appellant
Mr Bruce Carr (instructed by Solicitor for Her Majesty's Revenue & Customs, Somerset House, West Wing, Strand, London WC2R 1LB) for the Respondents
Hearing dates: 1 st– 2 nd February 2007
Approved Judgment
I direct that pursuant to CPR PD 39A paragraph 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
INTRODUCTION
This is an appeal by the appellant SCA Packaging Limited (“SCA”) against the decision in principle (“the Decision”) of a Special Commissioners Mr Charles Hellier (“the Commissioner”) released on the 23 rd May 2006.
The Decision was to the effect that certain payments calculated by reference to unexpired notice periods made by SCA to redundant employees whose contracts of employment incorporated a document entitled “the Memorandum of Agreement for the Protection of Employment and Compensation for Redundancy” (“the Memorandum”) were chargeable to income tax and National Insurance Contributions (“NIC”) as being emoluments from the employees' employments under Schedule E under section 19 of the Income and Corporation Taxes Act 1988 (“Section 19”).
The Commissioner held (and there is no appeal from his finding) that the contracts of the redundant employees other than office staff incorporated the Memorandum. The Commissioner also held in relation to Avril Ferrari an office staff member (and again there is no appeal from his finding) that her contract did not incorporate the Memorandum and on that basis that the payment in lieu of notice made to her was not an emolument from her employment under Section 19. There was no evidence before the Commissioner as to the position of other office staff members. Their position was left dependent on whether in their particular cases their contracts incorporated the Memorandum. The material before me would appear to indicate that they did.
FINDINGS OF FACT
The Decision contains a careful and detailed exposition of the relevant facts. The Commissioner held that on becoming employed by SCA each employee received a written statement of the terms and conditions of his or her employment pursuant to (what is now) section 1 of the Employment Rights Act 1996 (“ ERA”) including the following entitlement as to notice:
“You are entitled to receive and are required to give notice of termination of employment in accordance with:
(a) your agreement with [SCA]; or
(b) the provision of [now ERA]; whichever is longer.”
Accordingly the minimum notice period was that laid down in (what is now) section 86 of ERA, namely one week for each year of continuous employment subject to a minimum of one week and a maximum of twelve weeks. In some cases however (as the Commissioner held) the written statement was more specific as to the exact notice period and, for example, in the case of a Mr Badcock his statement provided that he was entitled to one month's notice or one week for each year of continuous employment up to a maximum of twelve weeks whichever should be the greater.
In summary the Commissioner held (and this holding is not challenged) that employees had a contractual (and statutory) right to notice of at least one week and up to twelve weeks based on the period of service.
From at least February 1992 onwards SCA and trades unions representing its employees entered into a series of memoranda which for present purposes were in the same terms as the Memorandum. The Memorandum contains specific provision relating to redundancy which remained the same throughout the relevant period.
The Memorandum makes provisions for employees generally and it also makes distinct provisions for two different classes of employees, namely those who were in SCA's employment at the 31 st December 1991 (referred to as “Existing Employees”) and those who joined SCA after the 31 st December 1991 (referred to as “New Employees”).
Clause 5.7 of the Memorandum, which applies to all employees, (so far as material) reads as follows:
“5.7 Redundancy Terms
… When notice is paid in lieu, then the individual's last day of service will be extended to include the notice period [for the purpose of calculating the number of complete years of service qualifying for redundancy payments].
Notice will be based on 1 week for every year of continuous service up to a maximum of 12 weeks or the individual's contractual notice period whichever is greater.”
Clause 5.8 of the Memorandum, which applies only to Existing Employees, (so far as material) reads as follows:
“… Redundancy payments will be based on three weeks pay (two plus one) for each complete year of continuous service. The additional one week's pay will only be paid in the event of co-operation from employees in achieving an orderly run down of the business and reduction in the number of employees.
… Payment will also be made of any unexpired period of notice as at the date of termination. Severance pay [i.e. redundancy pay plus notice paid in lieu] will be subject to a maximum of 2 years (104 weeks) pay or the number of weeks to normal retirement date whichever is less.”
Clause 5.9 of the Memorandum (headed “Transitional Arrangements”) provides that, in recognition of the fact that other employees had left SCA on redundancy terms which were more generous in some respects than the terms set out in the Memorandum, SCA is prepared to make ex gratia payments as there set out to Existing Employees made redundant at some point in the future.
Clause 5.10, which applies only to New Employees, reads as follows:
“Redundancy payments will vary according to length of service. Once the length of service qualification has been met, the higher redundancy entitlement will apply for each year of service.
Less than 5 years Continuous Service
Redundancy payments will be based on two and a half weeks pay for each complete year of service.
5 Years or more Continuous service
Redundancy payments will be based on three weeks pay for each complete year of service.
Severance pay ie redundancy pay plus notice paid in lieu will be subject to a minimum payment of 4 weeks pay ie no one will receive any less than 4 weeks pay on termination.”
Appendix 1 of the Memorandum is headed: “Formula for Calculation of Redundancy where Notice is Worked”. Various calculations are set out of employees' entitlement in a series of situations which include situations both where notice is and where it is not worked.
At various times between 1996 and 2001 SCA irrevocably decided to make a number of its employees redundant. The only question requiring determination was whether the employees should receive the notice to which they were entitled or payment in lieu. The employees in question were at SCA's branches at Histon (where redundancies were declared in 1996) Lydbrook (where they were declared in 1999/2000 and 2001/2002) and Edinburgh (where they were declared in 2001). After discussions with the trade unions concerned, for the orderly run down of the business SCA asked the employees to agree payment in lieu of notice as part of their redundancy packages and stated that the payment in lieu of notice was to be calculated and made in accordance with the provisions of the Memorandum. The bulk of employees agreed to payment in lieu of notice and payment to them was calculated and made in accordance with the provisions of the Memorandum....
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