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Case No: EATRF/1998/0297
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM EMPLOYMENT APPEAL TRIBUNAL
Royal Courts of Justice
Strand, London, WC2A 2LL
Tuesday 23 May 2000
B e f o r e :
LORD JUSTICE PETER GIBSON
LORD JUSTICE MANCE
and
MR. JUSTICE MOORE-BICK
|
HALL
|
Appellant
|
|
-
and -
|
|
|
WOOLSTON
HALL LEISURE LIMITED
|
Respondent
|
__________________________________
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
__________________________________
Mr. Andrew Hochhauser Q.C. and Mr. Charles Ciumei (instructed by
Messrs. Stanley Tee & Co. of Bishops Stortford for the Appellant)
The Respondent did not appear and was not represented
Miss Monica Carss-Frisk (instructed by the Treasury Solicitor) appeared
as Amicus Curiae
__________________________________
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE PETER GIBSON:
1. This appeal gives rise to an issue of some general importance: where the
performance by the employer of a contract of employment involves illegality of
which the employee is aware, does public policy bar the employee, when
discriminated against on the ground of her sex by dismissal by the employer in
contravention of the Sex Discrimination Act 1975 ("the 1975 Act"), from
recovering compensation under the 1975 Act?
The facts
2. It is an appeal by the Applicant, Jill Hall, who was employed by the
Respondent, Woolston Hall Leisure Ltd. ("the Employer"), as a sous chef from 15
July 1994 and later as head chef at Epping Forest Golf Club until she was
dismissed on 1 March 1995. In early 1995 the Employer's managing director, Mr.
Pomfrett, was made aware that she was pregnant. She was dismissed, ostensibly
on grounds of redundancy and incapability. She applied to an Industrial
Tribunal, alleging that the true reason for her dismissal was her pregnancy and
that she was being discriminated against on the basis of that pregnancy. By a
decision promulgated on 5 June 1996 the Tribunal found that she was unlawfully
discriminated against on the ground of her sex contrary to s. 6(2)(b) of the
1975 Act as she would not have been dismissed had she not been pregnant and
that she had therefore been treated less favourably by the Employer than it
would have treated a man. Mrs. Hall had also complained of unfair dismissal,
but having heard the Tribunal's decision she withdrew that complaint.
3. Mrs. Hall's application was then adjourned to a remedies hearing. At that
hearing, as at the earlier hearing, Mrs. Hall had only a lay representative
appearing for her and although given an opportunity to seek professional
representation she opted to go ahead with her lay representative. At the
adjourned hearing the Employer through its counsel took the point that the
contract of employment was tainted with illegality and that Mrs. Hall could
recover nothing. The jurisdiction of the court to hear the claim was
questioned. But counsel for the Employer eventually conceded that the Tribunal
had jurisdiction to deal with compensation for loss and injury to feelings and,
in the light of the decision of the Employment Appeal Tribunal ("the EAT") in
Leighton v Michael [1995] I.C.R. 1091, the Tribunal, with some
hesitation, accepted that it had jurisdiction to hear a claim for compensation
under the 1975 Act.
4. Evidence was given by Mrs. Hall that on her promotion she negotiated a pay
rise. She asked for £250 per week net of deductions and that is what she
received in cash from the Employer. The weekly payslips which accompanied her
pay, however, showed gross pay of £250, deductions of £63.35, and a
net sum paid of £186.65. She said that when she queried this with Mr.
Pomfrett, he said "It's the way we do business". She further said that she was
5 months pregnant when dismissed, and was very upset by the dismissal, already
having two children to look after, and was worried about coping. Mrs. Hall's
evidence was accepted by the Tribunal.
5. The Tribunal in its decision promulgated on 3 December 1996 made the
following holding:
"We hold that the contract of employment was tainted with illegality. Mrs.
Hall was turning a blind eye to the fact that the Respondents were not paying
tax on part of her income. Where the payslips differed from the money she
received each week there is only one logical conclusion, namely that there was
an intention by the Respondents not to pay all the tax that was due. Indeed
Mrs. Hall was told by the Respondents that was the way they did business and
she in our view knew that the Inland Revenue were being defrauded."
6. The Tribunal accepted the Employer's submissions that as Mrs. Hall was not
entitled to enforce the contract whilst it was running, she had no legal rights
that were destroyed when the contract was brought to an end. Consequently it
held that she suffered no loss and was not entitled to compensation under the
1975 Act. However it awarded £2,000 for injury to feelings.
7. Mrs. Hall appealed to the EAT. For the first time at the appeal hearing
on 5 February 1998 she was represented by counsel. But the Employer had ceased
to trade on 31 January 1998 and did not appear. His Honour Judge Peter Clark,
giving the judgment of the EAT ([1998] I.C.R. 651 at p. 653), referred to the
decision of the EAT in Leighton v Michael that the fact that a contract
of employment was tainted with illegality did not prevent the entertaining of a
complaint of sex discrimination. Judge Peter Clark expressed the EAT's doubts
about the correctness of the decision in Leighton v Michael, but said
that in the interests of comity the EAT did not depart from the principle there
laid down. However he went on to say (at p. 654):
"It is a basic principle of the administration of justice that the court will
not lend itself to enforcing an illegal contract involving a fraud on the
revenue. To order compensation for loss of earnings, based on a contract of
employment performed illegally to the knowledge of the claimant, offends that
principle."
The EAT accordingly dismissed the appeal.
8. Mrs. Hall then appealed to this court with the leave of the EAT. That
appeal first came on for hearing on 15 October 1999 when Mr. Hochhauser Q.C.
and Mr. Ciumei appeared for Mrs. Hall. She has had the advantage of them and
their instructing solicitors appearing for her pro bono. The Employer again was
not represented. We had the benefit of full argument from Mr. Hochhauser, but
we took the view that because of the general importance of the points taken on
behalf of Mrs. Hall we should seek the assistance of an amicus. Consequently
the hearing was adjourned. Regrettably it has not been possible to have the
adjourned hearing until 7 April, when we have had the assistance of Miss
Carss-Frisk as amicus. We are most grateful to her, as we are to Mr.
Hochhauser, for the admirable arguments which have been presented to us. To
save time we called for a transcript of the earlier hearing, and we have
treated what was said then as having been repeated to us at this adjourned
hearing, to which Mr. Hochhauser added some further submissions, before we
heard Miss Carss-Frisk's submissions.
9. Before I turn to those submissions, let me set out the statutory
background.
The 1975 Act
10. S. 1 (1) of the 1975 Act provides:
"A person discriminates against a woman in any circumstances relevant for the
purposes of any provision of this Act if -
(a) on the ground of her sex he treats her less favourably than he treats or
would treat a man ...."
11. Part II of the 1975 Act deals with discrimination in the employment field.
By s. 6(2):
"It is unlawful for a person, in the case of a woman employed by him at an
establishment in Great Britain, to discriminate against her -
....
(b) by dismissing her ...."
12. By s. 41 anything done by an employee in the course of his employment is
to be treated for the purposes of the 1975 Act as done by his employer as well
as by him.
13. In Part VII the enforcement provisions of the 1975 Act are to be found.
S. 63 gives jurisdiction to the Tribunal to entertain complaints of
discrimination. By s. 65(1):
"When an industrial tribunal finds that a complaint presented to it under
section 63 is well-founded the tribunal shall make such of the following as it
considers just and equitable -
....
(b) an order requiring the respondent to pay to the complainant compensation
of an amount corresponding to any damages he could have been ordered by a
county court .... to pay to the complainant if the complaint had fallen to be
dealt with under section 66 ...."
14. By s. 66(1):
"A claim by any person ("the claimant") that another person ....
(a) has committed an act of discrimination against the claimant which is
unlawful by virtue of Part III, or
(b) is by virtue of section 41 .... to be treated as having committed such an
act of discrimination against the claimant,
may be made the subject of civil proceedings in like manner as any other claim
in
tort ...."
15. The 1975 Act contains no public policy defences.
The Directive
16. The Equal Treatment Directive (Council Directive No. 76/207/EEC) ("the
Directive") is also in point. This provides (so far as is relevant):
"Article 1
1 The purpose of this Directive is to put into effect in the Member States the
principle of equal treatment for men and women as regards access to employment
.... and as regards working conditions ....
....
Article 2
1 For the purposes of the following provisions, the principle of equal
treatment shall mean there shall be no discrimination whatsoever on grounds of
sex either directly or indirectly ....
....
Article 5
1. Application of the principle of equal treatment with regard to working
conditions, including the conditions covering dismissal, means that men and
women shall be guaranteed the same conditions without discrimination on grounds
of sex.
....
Article 6
Member States shall introduce into their national legal systems such measures
as are necessary to enable all persons who consider themselves wronged by
failure to apply to them the principle of equal treatment within the meaning of
Articles 3, 4 and 5 to pursue their claims by judicial process after possible
recourse to other competent authorities."
17. Mr. Hochhauser submits that the Tribunal and the EAT erred in law in
refusing to award compensation for the unlawful discrimination of the Employer
in dismissing Mrs. Hall. Miss Carss-Frisk, approaching the matter objectively
as an amicus, has also felt impelled to make submissions that the appeal should
be allowed. In the absence therefore of argument from the Employer, we have
had to consider with care whether the reasoning of the Tribunal and the EAT
could be sustained. But I am satisfied that it cannot.
The Directive
18. I start with the Directive, as even though Mrs. Hall cannot rely on it
directly, the Employer not being an emanation of the State, the Tribunal must
interpret the national law in the light of the wording and purpose of the
Directive and, so far as possible, give effect to the Directive (see, for
example, Marleasing S.A. v La Comercial International de Alimentacion
S.A. [1990] E C R I-4135 at I-4159 para. 8). The Directive
unambiguously guarantees the principle of fair treatment between men and women
with regard to working conditions (Article 5 (1)). Moreover by Article 6 it
requires the national legal systems to provide effective redress for breaches
of the principle. As was said by the European Court of Justice in Von
Colson v Land Nordrhein-Westfalen [1984] ECR 1891 at p. 1907 para
18:
"It follows from [Article 6] that Member States are required to adopt measures
which are sufficiently effective to achieve the objective of the directive to
ensure that those measures may in fact be relied upon before the national
courts by the persons concerned."
Further at p. 1908 para. 23:
"Although .... full implementation of the directive does not require any
specific form of sanction for unlawful discrimination, it does entail that the
sanction be such as to guarantee real and effective judicial protection.
Moreover it must also have a real deterrent effect on the employer."
19. The procedural rules of a Member State governing actions for safeguarding
rights which individuals derive from Community law must "not render virtually
impossible or excessively difficult the exercise of rights conferred by
Community law (the principle of effectiveness)" (Levez v T H Jennings
Ltd. [1998] I.C.R. 521 at p. 541 para. 18). Further, given that financial
compensation is a measure adopted by the United Kingdom to redress any sex
discrimination, the European Court of Justice has stated that "it must be
adequate in that it must enable the loss and damage actually sustained as a
result of the discriminatory dismissal to be made good in full in accordance
with the applicable national rules" ( Marshall v Southampton Area Health
Authority (No. 2) [1993] ICR 893 at p. 932 para. 26).
20. The Directive, therefore, requires the United Kingdom to give real and
effective judicial protection to victims of sex discrimination at work and to
provide a sanction with a real deterrent effect on the employer. The 1975 Act,
although passed before the Directive, is the means by which the United Kingdom
gives effect to its Directive obligations.
21. Can a Member State's national law derogate from the requirements of the
Directive? The "basic principle" to which Judge Peter Clark referred in the
passage cited in para. 7 above is founded on public policy. Is the national
court when faced with a claim under the 1975 Act allowed to give effect to
public policy considerations? Mr. Hochhauser and Miss Carss-Frisk submitted
that those questions should be answered in the negative.
22. The Directive only refers to the possibility of derogation by a Member
State in one particular respect not material to the present case (see Article 2
(2) which allows Member States to exclude from the Directive's field of
application certain occupational activities and the training leading thereto).
The EC Treaty provides for particular public policy derogations by Member
States (see for instance Articles 39 (3) and 46 (1) of the Treaty as amended),
but none that is relevant to the present case.
23. In Johnston v RUC [1987] ICR 83 the RUC sought to justify its
decision not to employ women as armed full-time members of the Reserve on the
grounds of public safety. But the European Court of Justice rejected the
argument that the Directive was subject to a public safety proviso. It said
(at p. 102):
"26. .... If every provision of Community law were held to be subject to a
general proviso, regardless of the specific requirements laid down by the
provisions of the E.E.C. Treaty, this might impair the binding nature of
Community law and its uniform application.
27. It follows that the application of the principles of equal treatment for
men and women is not subject to any general reservation as regards measures
taken on grounds of the protection of public safety ...."
24. To the same effect were the decisions of the European Court of Justice in
Sirdar v Army Board [2000] I.C.R. 130 and Kreil v Bundesrepublik
Deutschland, unreported, 11 January 2000, where it was held that the
exclusion of women from the German armed services could only be justified by
reference to the specific derogation in Article 2(2) of the Directive.
25. In Draehmpaehl v Urania Immobilienservice [1998] I.C.R. 164 the
question was whether German legislation, which made awards of compensation for
sex discrimination conditional on proof of fault by the employer, was
compatible with the Directive. The European Court of Justice held that it was
not. It said that any breach of the prohibition of discrimination must in
itself be sufficient to render the employer fully liable and that the Directive
did not provide for any ground of exemption from liability and did not make
compensation conditional on the existence of fault.
26. The reasoning of the European Court of Justice in the cases to which I
have referred suggests that there can be no derogation from the Directive on
the ground of public policy, no relevant derogation having been provided for in
the Directive or in the EC Treaty. That would accord with the recognition in
Defrenne v Sabena [1978] ECR 1365 at p. 1378 paras. 26 and 27 that
the elimination of discrimination based on sex formed part of the fundamental
personal human rights respect for which is one of the general principles of
Community law. But no case has been drawn to our attention where it has been
held that there can never be any derogation from the Directive on the ground of
public policy. It is possible to think of circumstances, no doubt extreme,
where it may be open to question whether the Directive was intended to confer
protection (for example the dismissal on the ground of sex of an employee of
the Mafia). The point raised is of wide significance, but it is one on which
we have heard only one side of the argument. Unless the English law on
illegality denies Mrs. Hall, in the far from extreme circumstances of her case,
an effective remedy for the discrimination against her on the ground of her sex
(and, for the reasons to which I am about to come, I have concluded that it
does not), I would prefer not to express a concluded view on that point.
27. Miss Carss-Frisk also raised an argument based on Article 6 of the
European Convention on Human Rights. But again in the circumstances I prefer
not to say anything on this point, which may be one of significance in other
cases relating to a right not governed by European Community law (for example a
complaint of race discrimination).
Illegality under English law
28. There can be no doubt but that under English law a claim, whether in
contract or in tort, may be defeated on the ground of illegality or, in the
Latin phrase, ex turpi causa non oritur actio. The classic statement of the
principle was by Lord Mansfield in Holman v Johnson (1775) 1 Cowp 341
at p. 343:
"No court will lend its aid to a man who founds his cause of action upon an
immoral or illegal act. If, from the plaintiff's own stating or otherwise, the
cause of action appears to arise ex turpi causa, or the transgression of
a positive law of this country then the court says he has no right to be
assisted."
29. Although we are not directly concerned with a claim in contract, it is
helpful to consider the applicability of the defence of illegality to a
contractual claim before considering the more directly relevant position of a
claim in tort. In contract the decision of the House of Lords in Tinsley v
Milligan [1994] 1 AC 340 has reaffirmed that the claimant cannot found
his claim on an unlawful act. But when the claimant is not seeking to enforce
an unlawful contract but founds his case on collateral rights acquired under
the contract the court is neither bound nor entitled to reject the claim unless
the illegality of necessity forms part of the claimant's case (p. 377 per Lord
Browne-Wilkinson).
30. In two types of case it is well-established that illegality renders a
contract unenforceable from the outset. One is where the contract is entered
into with the intention of committing an illegal act; the other is where the
contract is expressly or implicitly prohibited by statute (St. John Shipping
Corp. v Joseph Rank Ltd. [1957] 1 Q.B. 267 at p. 283 per Devlin J.)
31. In a third category of cases a party may be prevented from enforcing it.
That is where a contract, lawful when made, is illegally performed and the
party knowingly participated in that illegal performance. In Ashmore,
Benson Ltd. v Dawson Ltd. [1973] 1 W.L.R. 828 Lord Denning M.R. (at p. 833)
said:
"Not only did [the plaintiff's transport manager] know of the illegality. He
participated in it by sanctioning the loading of the vehicle with a load in
excess of the regulations. That participation in the illegal performance of
the contract debars [the plaintiff] from suing [the defendant] on it or suing
[the defendant] for negligence."
So too Scarman L.J. (at p. 836):
"But knowledge by itself is not enough. There must be knowledge plus
participation .... For those reasons I think the performance was illegal."
32. In the employment law field the test of knowledge plus participation has
also been recognised for illegality to be a defence. Thus in Davidson v
Pillay [1979] I.R.L.R. 275 Slynn J., giving the judgment of the EAT,
referred to Tomlinson v Dick Evans "U" Drive Ltd. [1978] I.R.L.R. 77 as
a case where the employer and employee were parties to a deliberate fraud on
the Revenue and the employee could not rely upon an illegal contract. He said
(at p. 77 para. 3):
"We follow and accept the decision in that case as properly stating the law
where both the employer and employee are a party to the illegality and have
knowledge of it."
33. In Coral Leisure Group Ltd. v Barnett [1981] I.C.R. 503 the EAT at
p. 508 asked itself the question whether any taint of illegality affecting part
of a contract necessarily rendered the whole contract unenforceable by a party
who knew of the illegality. In the case of a contract not for an illegal
purpose or prohibited by statute the EAT answered that question in the
negative, holding that the fact that the employee in the course of his
employment committed an unlawful act did not prevent him from asserting
thereafter his contract of employment against his employer.
34. In Newland v Simons & Willer (Hairdressers) Ltd. [1981] I.C.R.
521 the question was whether an employee could complain of unfair dismissal in
circumstances where the tribunal had held that the employee knew or ought to
have known that her employer had failed to pay tax and National Insurance
contributions ("NIC") in respect of her wages. The majority of the EAT were of
the view that where both employer and employee knowingly commit an illegality
by way of a fraud on the Revenue in the payment and receipt of the employee's
remuneration under a contract of employment, the contract was turned into one
prohibited by statute or common law and the employee was precluded from
enforcing any employment rights which she might otherwise have against the
employer. The majority thought the essential question to be: "Has the
employee knowingly been a party to a deception on the Revenue?" (see p. 531).
Further at p. 533 May J. said:
"We have no doubt that Parliament never intended to give the statutory rights
provided for by the relevant employment legislation to those who were knowingly
breaking the law by committing or participating in a fraud on the revenue."
35. In Hewcastle Catering Ltd. v Ahmed [1992] I.C.R. 626 the employer,
a club proprietor, had devised a scheme fraudulently to avoid VAT, and the
employee waiters were required to implement the scheme. After giving evidence
for the prosecution, the waiters were dismissed. They complained to a
tribunal. The employer alleged that the contracts of employment were tainted
with illegality and that the waiters knowingly participated in the fraudulent
evasion of tax. The tribunal found that the waiters were unfairly dismissed.
The EAT dismissed the employer's appeal, as did this court. Beldam L.J. (at p.
637) took into account a number of factors which would lead a court to conclude
that public policy did not preclude the waiters' claim. They were that the
obligation to make VAT returns and keep proper records was that of the
employer, that the contract of employment was not one by which the employee was
engaged to assist in the fraud, that to deny an employee the right to claim
compensation could well discourage disclosure of the fraud, that the steps
taken by the waiters and the implementation of the fraudulent scheme were not
essential or significant and that (applying the test of an affront to public
conscience) there would be no such affront in giving the waiters relief. The
test of an affront to public conscience was subsequently held by the House of
Lords in Tinsley v Milligan [1994] 1 AC 340 to be an inappropriate
test. Nevertheless the other factors which weighed with Beldam L.J. are proper
considerations to be taken into account in determining whether the defence of
illegality should prevail.
36. In Salvesen v Simons [1994] ICR 409 the EAT had to consider
whether the payment, pursuant to an arrangement between employer and employee,
of part of the employee's salary without deduction of tax and NIC rendered a
contract illegal and unenforceable with the result that the employee could not
pursue a claim for constructive dismissal. The EAT held that it was
unenforceable. Lord Coulsfield (at p. 424) said that the ex turpi causa rule,
being based on public policy, should be applied pragmatically and fairly, even
in cases where the claim was directly founded upon a contract tainted with
illegality. But in that case the employee, although innocent of deliberate
illegality, had suggested the arrangement which was made, and so it was held
that the contract of employment should be treated as unenforceable.
37. The next case to which I should refer is Johal v Adams, an
unreported decision of the EAT on 11 January 1996. In that case part of the
remuneration of the employee was paid by the employer in cash to defraud the
Revenue. The Tribunal found the employee knew of the fraud and, although not
very happy, had acquiesced in the arrangement. The Tribunal held that the
contract of employment was unenforceable. On appeal to the EAT, Judge Peter
Clark said that Salvesen v Simons was a case where it was held that a
party to an illegal contract who knew what was being done could not pursue a
complaint of unfair dismissal founded on the contract. He further said that in
employment cases it had traditionally been held that complaints of unfair
dismissal were based upon the contract of employment. The EAT therefore
dismissed the appeal in relation to the complaint of unfair dismissal. It also
dismissed a racial discrimination complaint on the ground that the detriment
alleged was the employee's dismissal and the Judge said that because dismissal
was an essential ingredient of the employee's complaint, the practice in
relation to unfair dismissal also applied, the complaint being founded on the
contract of employment.
38. With all respect to the Judge, his view of the unfair dismissal cases is
an over-simplified one. In cases where the contract of employment is neither
entered into for an illegal purpose nor prohibited by statute, the illegal
performance of the contract will not render the contract unenforceable unless
in addition to knowledge of the facts which make the performance illegal the
employee actively participates in the illegal performance. It is a question of
fact in each case whether there has been a sufficient degree of participation
by the employee. And as Coral Leisure Group shows, even if the employee
has in the course of his employment done illegal acts he may nevertheless be
able subsequently to rely on his contract of employment to enforce his
statutory rights. The Salvesen case on its facts was not a case of mere
knowledge of the facts constituting illegality: the employee's involvement was
much greater. The Hewcastle case shows some of the factors which may be
relevant to determining whether the statutory employment rights conferred on an
employee are not to be defeated by illegality in the performance of the
contract of employment.
39. I turn next to illegality as a defence in relation to a claim in tort.
In Clunis v Camden and Islington Health Authority [1998] QB 978 this
court specifically held that the defence applies in cases of tort, Beldam L.J.
at p. 987 saying:
"We do not consider that the public policy that the court will not lend its aid
to a litigant who relies on his own criminal or immoral act is confined to
particular causes of action."
40. But in Standard Chartered Bank v Pakistan National Shipping Corp.,
unreported, 3 December 1999, Evans L.J. said at para. 44 that the authorities
supported the pragmatic approach described by Bingham L.J. in Saunders v
Edwards [1987] 1 W.L.R. 1116 at p. 1134:
"When the plaintiff's action in truth arises directly ex turpi causa, he is
likely to fail .... Where the plaintiff has suffered a genuine wrong, to which
the allegedly unlawful conduct is incidental, he is likely to succeed."
In Saunders v Edwards the fraud against the Revenue perpetuated by the
plaintiff was not considered a bar to his suing the defendant for the
consequences of the defendant's fraud. Evans L.J. said in Standard
Chartered at para. 53 that the harshness of the application of the defence
meant that it was likely to be applied sparingly so as not to defeat in
particular cases what were perceived to be just or genuine claims.
41. In Markesinis and Deacon: Tort Law 4th ed. (1998) p. 710 it is
said that for the defence to apply it is necessary to show that there was a
causal link between the illegality in which the claimant was implicated and the
loss of which he is now complaining. That is supported by the decision of this
court in Cross v Kirkby, unreported, 18 February 2000. Beldam L.J., with
whom Otton L.J. agreed, said (at para. 76) that for the ex turpi causa
principle to operate, the claim made by the claimant must arise out of criminal
or illegal conduct on his part, a causal connection between the illegal conduct
and the claim being necessary. He continued:
"In my view the principle applies when the claimant's claim is so closely
connected or inextricably bound up with his own criminal or illegal conduct
that the court could not permit him to recover without appearing to condone
that conduct."
In a similar vein Judge L.J. (at para 103) said:
"In my judgment, where the claimant is behaving unlawfully, or criminally, on
the occasion when the cause of action in tort arises, his claim is not liable
to be defeated ex turpi causa unless it is also established that the
facts which give rise to it are inextricably linked with his criminal
conduct."
42. As ss. 65 and 66 of the 1975 Act indicate, sex discrimination which is
unlawful under the 1975 Act is a statutory tort, to which the tortious measure
of damages is applicable if the remedy in s. 65 (1)(b) is that chosen by the
Tribunal as being the just and equitable remedy (see Ministry of Defence v
Cannock [1994] I.C.R. 918 at pp. 936-7). It therefore follows that the
correct approach of the Tribunal in a sex discrimination case should be to
consider whether the applicant's claim arises out of or is so clearly connected
or inextricably bound up or linked with the illegal conduct of the applicant
that the court could not permit the applicant to recover compensation without
appearing to condone that conduct.
43. Leighton v Michael [1995] I.C.R. 1091 was a case before the EAT
under the 1975 Act. The employee worked in a fish and chip shop, first for
employers, who properly deducted tax and NIC from her wages, and then, when the
business was sold, for a new employer. He refused to make such deductions,
despite her complaint, and when she had additional earnings for additional
work, she knew that deductions should have been made, but were not, from the
earnings. After 9 months she left her employment. She claimed sexual
harassment and victimisation on the basis that she was dismissed because her
solicitors wrote a letter of complaint just before she left. The Tribunal
dismissed her claims because the carrying out of her contract of employment
involved a fraud on the Revenue and because she was not entitled to rely on her
contract by reason of the illegality to which she was a party.
44. The EAT allowed the employer's appeal. One member did not regard the
employee as knowingly a party to a fraud on the Revenue. The majority in their
reasons given by Mummery J. at p. 1087 accepted that where the employee's
claims are directly founded upon a contract knowingly tainted with illegality,
they will be treated as unenforceable on the ground of public policy. At p.
1098 they distinguished cases in which an illegal contract of employment has
been held to disqualify applicants for unfair dismissal and redundancy
payments, being cases founded on the contract of employment, from claims under
the 1975 Act, saying:
"(11) Protection under the Act of 1975 against sex discrimination involves a
reference to the contract to determine whether the person is "employed" within
the meaning of the statute, but the claim of sex discrimination does not
involve enforcing, relying on or founding a claim on the contract of
employment. In brief, the right not to be discriminated against on the grounds
of sex is conferred by statute on persons who are employed. There is nothing
in the statute to disqualify a person, who is in fact employed, from protection
by reason of illegality in the fact of, or in the performance of, the contract
of employment. There is nothing in public policy to disqualify a person from
the protection of the statute, if the claim to the statutory protection is not
founded on, or is not seeking to enforce, contractual obligations."
45. Judge Peter Clark has made plain his disquiet with the distinction drawn
in Leighton v Michael. He did so both in the present case and also in
another decision of the EAT, Chilton v HM Prison Service, unreported, 15
July 1999, where he said:
"We have grave reservations as to the correctness of Leighton. We are
unable to appreciate the distinction between statutory claims of unfair
dismissal and sex discrimination for the purposes of applying the public policy
doctrine of illegality. Both statutory causes of action depend upon the
contract as a prerequisite for the claim."
46. It is undoubtedly correct that where the complaint is of sex
discrimination by dismissing an employee, the employee must establish that she
was employed and was dismissed from that employment, so that to that extent
reliance must be placed on the contract of employment. But in my judgment it
could not properly be said that the complaint of sex discrimination by
dismissal was based on the contract of employment, still less that her claim of
such discrimination was so closely connected with or inextricably bound up or
linked with the acquiescence by the employee in the unlawful failure by the
employer to deduct PAYE and NIC that the court would be seen to be condoning
unlawful conduct by the employee. It is the sex discrimination that is the
core of the complaint, the fact of employment and the dismissal being the
particular factual circumstances which Parliament has prescribed for the sex
discrimination complaint to be capable of being made. The illegality consists
only of the employer's mode of paying wages. In my judgment Leighton v
Michael was rightly decided and the awareness of the employee that the
employer was failing to deduct tax and NIC and to account to the Revenue does
not of itself constitute a valid ground for refusing jurisdiction.
47. In the present case, the employment contract of Mrs. Hall at its inception
and on its variation when she successfully bargained for increased wages on her
promotion was entirely lawful. It did not incorporate a term that adopted the
subsequent illegality. When on performance of the varied contract by the
Employer the illegality appeared in the form of the false payslip, Mrs. Hall
queried it. The obligation to pay PAYE and NIC rested on the Employer (in the
absence of a direction from the Revenue that Mrs. Hall was to account for the
tax and NIC: see I.R.C. v Herd [1993] 1 WLR 1090). There was no
active participation by her in the illegality. With the aid of counsel we have
considered whether Mrs. Hall herself was guilty of any illegality under the
fiscal legislation, or at common law by reason of the offence of cheating the
public revenue, but I have seen nothing that shows that she herself was guilty
of any unlawful conduct. No benefit is shown to have been received by her from
the Employer's failure to deduct tax and NIC and to account for the same to the
Revenue. Her acquiescence in the Employer's conduct, which is the highest her
involvement in the illegality can be put, no doubt reflects the reality that
she could not compel the Employer to change its conduct. That aquiescence is
in no way causally linked with her sex discrimination claim. In the
circumstances it would seem to me to be deplorable if someone in the position
of Mrs. Hall were left by English law unable to enforce her statutory claim. I
am glad to be able to reach the conclusion that that is not the law and that
public policy does not so require.
48. This conclusion seems to me supported by the Directive. A person in Mrs.
Hall's position is to my mind clearly within the ambit of the Directive,
designed as it was to protect employees being discriminated against on the
ground of their sex. The dismissal of Mrs. Hall because of her pregnancy
contravenes the purpose of the Directive, which also supports her not being
denied an effective remedy under the 1975 Act.
49. In my judgment the Tribunal and the EAT failed to adopt the correct
approach to the claim in respect of the statutory tort under the 1975 Act. I
would add that for similar reasons the decision by the EAT to dismiss the
racial discrimination claim in Johal v Adams was in my view wrong.
Conclusion
50. For these reasons, which owe much to Mr. Hochhauser's and Miss
Carss-Frisk's lucid submissions, I would allow this appeal and set aside the
determination made by the Tribunal at the remedies hearing. I would remit Mrs.
Hall's application to the Tribunal to determine the compensation to which she
is entitled, if possible to the same Tribunal as heard her application, though
I recognise that after this lapse of time that may not be possible.
LORD JUSTICE MANCE:
51. By decision sent to the parties on 5th June 1996 (albeit dated
on its last page 23rd December 1996), the Industrial Tribunal held
that the appellant, Mrs Hall, had been unlawfully discriminated against on the
grounds of her sex, by being dismissed by the respondent from her post as head
chef at Epping Forest Golf Club on 1st March 1995 because she was
pregnant. A remedies hearing was fixed for 8th November 1996. By
decision dated 3rd December 1996 the Tribunal, after considering
Leighton v. Michael [1995] ICR 1091 (EAT) held, with some hesitation,
that it had jurisdiction to hear Mrs Hall's claims for damages for injury to
feelings and financial loss, awarded her £2,000 on the former account but
held that her contract of employment was tainted by illegality, and therefore
that
"... as she was not entitled to enforce the contract whilst it was running, she
had no legal rights that were destroyed when the contract was brought to an
end. Consequently she suffered no losses in law and is not entitled ... to any
compensation under s. 65 of the Sex Discrimination Act 1975".
52. On 5th February 1998 the Employment Appeal Tribunal upheld this
decision. Neither before it nor before us was the respondent employer
represented, having ceased to trade in January 1998. Although we have had the
considerable benefit of Miss Carss-Frisk's assistance as amicus curiae, as well
as Mr Hochhauser's submissions for Mrs Hall, we have not heard argument
supporting the submissions which counsel for the employer persuaded the
Industrial Tribunal to accept.
53. The nature of the illegality which the Tribunal found and which in its view
tainted the contract of employment has been set out in the judgment given by
Peter Gibson L.J. There was nothing illegal about Mrs Hall's contract when she
was first appointed sous chef on 15th July 1994, or when it was
varied by her promotion to head chef in or about September 1994 at an increased
pay of £250 per week net of deductions. There is nothing necessarily wrong
or illegal in agreeing to pay an employee a sum net of deductions: see
Miller v. Karlinski (1945) 62 TLR 85, 86 per du Parcq LJ cited in
Newland v. Simons & Willer Ltd. [1981] ICR 521, 527D-E. After her
pay increase, however, although Mrs Hall received £250 net as agreed, she
noticed that her pay slips showed a gross pay of £250 and a net pay of
£186.65, with deductions purportedly made of £63.35 per week. On
querying this with the respondent she was told simply "It's the way we do
business". So matters continued, evidently, for some 5 or so months. The
Industrial Tribunal held that Mrs Hall was turning a blind eye to the fact, and
knew, that the Revenue was being defrauded.
54. In Leighton v. Michael the Employment Appeal Tribunal was concerned
with an initial question of jurisdiction, whether it was open to an employee to
pursue any claim for sex discrimination in circumstances where her contract of
employment was illegal (the illegality in that case being taken by the majority
to arise not merely from continuing to receive pay in the knowledge that no
deductions were being made, but also from beginning a new job peeling potatoes
in the knowledge that no such deductions would be made). The majority held
that, although under the Sex Discrimination legislation (see ss. 6(2) and 81(2)
of the 1975 Act), employment by reference to a contract is a factual
pre-condition to the form of sex discrimination claim pursued in both that case
and this, the claim is conferred by statute and does not involve enforcing,
relying on or founding a claim on the contract of employment (p.1098, para.11).
In Leighton v. Michael the claim included by amendment a claim of
discrimination by dismissal (see p.1095F-G). The judgment does not suggest that
this claim might have to be disregarded when remedies came to be considered,
but the argument that it might require special treatment was evidently not
mooted, at least at the preliminary stage reached in that case.
55. We are in this case faced with a half way situation, in so far as the
Industrial Tribunal has held that it had jurisdiction to make a limited award
of compensation, despite the illegality which it identified, but has refused
damages for financial loss flowing from the dismissal. Although there has been
no appeal challenging Mrs Hall's right to seek any compensation at all, it is
impossible to avoid looking at the position overall in considering the impact
of the suggested illegality on her claim under the 1975 Act. But I do not doubt
that English law recognises situations in which a claimant will be barred on
grounds of illegality from pursuing a particular head of relief, rather than
the whole of his or her claim. An example from a different area is provided by
Hunter v. Butler (CA, 19 December 1995, ref. C0003516,
unreported). See also Meah v. McCreamer [1985] 1 AER 367; and [1986] 1
AER 943 (No.2), 951, the relevant passages from which were cited in
Clunis v. Camden and Islington Health Authority [1998] 2 WLR 902,
911C-F.
56. Whether and to what extent Mrs Hall can in the present case claim
compensation for her financial loss is a matter of domestic law, which depends
upon the construction of the Sex Discrimination Act 1975 and the application of
principles of common law. However, both the construction of the Act and the
identification or development of relevant common law principles may be
influenced by sources which do not, presently at least, form part of domestic
law. They are, first, Council Directive No. 76/207/EEC and, secondly, article 6
of the Human Rights Convention. The close relationship between the Directive
and the 1975 Act was highlighted in both the European Court of Justice's
reasoning in Coote v. Granada Hospitality Ltd. [1999] ICR 100, 112, esp.
at para. 18 and the subsequent Employment Appeal Tribunal decision [1999] IRLR
452. Although, technically, the Act preceded the Directive by two months, the
Directive was at the time in draft, and the UK Government has introduced no
other measure to give effect to it on the basis that the Act constitutes
compliance with the Directive. The Act is, in the European Court of Justice's
terms, to be viewed as "specially introduced in order to implement the
Directive".
57. The Directive cannot be relied upon as creating any rights directly
enforceable in the present case, since the respondent is a private sector
employer: see Coote [1999] ICR at p.111, para. 17. But, it has been
stated repeatedly by the European Court of Justice that:
"... The Member States' obligation arising from a directive to achieve the
result envisaged by the directive and their duty under Article 5 of the Treaty
[of Rome] to take all appropriate measures, whether general or particular, to
ensure the fulfilment of that obligation is binding on all the authorities of
the Member State including, for matters within their jurisdiction, the courts.
It follows that, in applying the national law and in particular the provisions
of a national law specifically introduced in order to implement Directive No
76/207, national courts are required to interpret their national law in the
light of the wording and the purpose of the directive in order to achieve the
result referred to in the third paragraph of Article 189".
58. The quotation is from paragraph 26 of the Court's decision in Von Colson
v. Land Nordrhein-Westfalen [1984] ECR 1891, 1909. The reference to the
third paragraph of article 189 is to the provision in the Treaty making
directives binding as to the result to be achieved on all member states, but
leaving to national authorities the choice of forum and methods. In
Marleasing SA v. La Comercial Internacional de Alimentacion SA [1990] ECR I-4135, paras. 7 and 8, the Court, after repeating the substance of the
first sentence of the above quotation, went on:
"... It follows that, in applying national law, whether the provisions in
question were adopted before or after the directive, the national court called
upon to interpret it is required to do so, as far as possible, in the light of
the wording and the purpose of the directive in order to achieve the result
pursued by the latter and therefore comply with the third paragraph of Article
189 of the Treaty."
59. The principle of interpretation of national law "as far as possible" in
conformity with the wording and purpose of the Directive may represent a
precursor to the approach to statutory construction which will from
2nd October 2000 be mandatory in the context of human rights (Human
Rights Act 1998, s.3(1)). The principle was reiterated by the Court in
Coote [1999] ICR 100, 111-2, para. 18 and is illustrated by the
reasoning adopted when the matter returned to the Employment Appeal Tribunal:
[1999] IRLR 452.
60. The Directive provides:
"Article 1
1. The purpose of this Directive is to put into effect in the Member States
the principle of equal treatment for men and women as regards access to
employment, including promotion, and to vocational training and as regards
working conditions ....
Article 2
1. For the purposes of the following provisions, the principle of equal
treatment shall mean that there shall be no discrimination whatsoever on
grounds of sex either directly or indirectly by reference in particular to
marital or family status.
Article 3
1. Application of the principles of equal treatment means that there shall be
no discrimination whatsoever on grounds of sex in the conditions, including
selection criteria, for access to all jobs or posts ... and to all levels of
the occupational hierarchy.
2. To this end, Member States shall take the measures necessary to ensure
that: (a) any laws, regulations and administrative provisions contrary to the
principle of equal treatment shall be abolished; ....
Article 5
1. Application of the principle of equal treatment with regard to working
conditions, including the conditions governing dismissal, means that men and
women shall be guaranteed the same conditions without discrimination on grounds
of sex.
Article 6
Member States shall introduce into their national legal systems such measures
as are necessary to enable all persons who consider themselves wronged by
failure to apply to them the principle of equal treatment within the meaning of
Articles 3, 4 and 5 to pursue their claims by judicial process after possible
recourse to other competent authorities."
61. In Coote, para. 20, the European Court of Justice also said with
reference to article 6 that:
"It follows from that provision that the member states must take measures which
are sufficiently effective to achieve the aim of the Directive and that they
must ensure that the rights thus conferred can be effectively relied upon
before the national courts by the persons concerned."
62. The Court went on:
"The requirement laid down by that article that recourse be available to the
courts reflects a general principle of law which underlies the constitutional
traditions common to the member states and which is also enshrined in article 6
of the European Convention for the Protection of Human Rights and Fundamental
Freedoms of 4 November 1950 (1953) Cmnd. 8969): see in particular Johnston
v. Chief Constable of The Royal Ulster Constabulary (Case 222/84) [1987] ICR 83, 100, para. 18."
63. Any indirect assistance which the present applicant might obtain from
article 6 of the Human Rights Convention, before provisions of that Convention
are directly incorporated in domestic law, is thus subsumed within the
principles of European law to be derived from Von Colson,
Marleasing and Coote.
64. In the applicant's submission, the Directive provides for and admits no
relevant exceptions, and the courts must therefore, as far as possible,
accommodate domestic law to this position. In Johnston the European
Court of Justice considered, in the context of Northern Ireland, whether the
Directive was subject to any exception in respect of discrimination introduced
for the purpose of safeguarding national security or of protecting public order
or more particularly safety. It held that there existed no such general
reservation, with the possible exception of article 224 of the Treaty which was
in the circumstances (as it clearly also is in the present case) inapplicable.
The same principle was recognised in Sirdar v. Army Board [2000] ICR 130
and Kreil v. Bundesrepublik Deutschland (ECJ, 11 January 2000,
unreported). In Draempaehl v. Urania Immobilienservice o.h.G. [1998] ICR
164, 180 para. 22, the European Court held that, "when a member state chooses
to penalise, under rules governing civil liability, breach of the prohibition
of discrimination", then provisions of domestic law which make reparation of
damage suffered as a result of discrimination on grounds of sex in the making
of an appointment dependent on proof of fault are inconsistent with the
Directive.
65. I do not consider that one can go straight from the proposition that the
Directive admits no general reservation or qualification to a conclusion that
it is axiomatically irrelevant if a particular employment is tainted by
illegality under domestic law. The Directive states its purpose in terms of
access to employment and vocational training and working conditions, including
conditions governing dismissal. The duty on member states, and, for matters
within their jurisdiction, the courts, is "to take measures which are
sufficiently effective to achieve the aim of the Directive and [to] ensure that
the rights thus conferred can be effectively relied upon before the national
courts by the persons concerned". In none of the cases before the European
Court of Justice was the nature of the prospective employment, vocational
training or working conditions in any way tainted by illegality. The
elimination of discrimination based on sex is a fundamental personal human
right, which the Directive is intended to ensure: see Defrenne v. Sabena
[1978] ECR 1365, paras. 26-27. But, on a proper understanding of both the
Directive and this fundamental principle, there may be limits, in terms of
legitimacy, to the "access to employment" and "working conditions" in relation
to which the Directive aims at eliminating discrimination. The draftsmen of the
Convention are unlikely to have set out to confer protection in respect of -
indeed are probably unlikely even to have contemplated - employment, vocational
training or working conditions the essence of which was illegal, for example
employment, training or working conditions as part of a hit-squad or by a
company known to have been established to carry out bank robberies or to
launder stolen money. It would seem improbable, therefore, that a national
court called upon to shape its national law as far as possible "in the light of
the wording and purpose of the directive in order to achieve the result pursued
by the latter" would be expected to afford a remedy even for sex discrimination
in such a context. But any limitation of this nature in the protection in
respect of sex discrimination afforded by the Directive must be derived from
the wording and purpose of the Directive. It cannot be determined by any rule
of domestic public policy, especially one which is not a principle of justice
and may operate indiscriminately. I have in mind in this respect of course Lord
Goff's description of the English doctrine of illegality in Tinsley v.
Milligan [1994] 1 AC 340, 355B-C (cited more fully below).
66. Nevertheless, rather than assume that English domestic law would, apart
from the Directive, necessarily reach a result which would involve conflict
between the aims of the Directive and what would otherwise represent domestic
law, I consider that our first task should be to consider the domestic legal
position, informing ourselves with the spirit and aim of the Directive as we do
so. Approaching the matter in that way, I note first that both the Directive
and the 1975 Act are aimed at conduct, sex discrimination, which can take place
independently of the conclusion of any contract. In the Directive this is clear
from the statement of purpose in article 1 as well as from the subsequent
articles regulating access to employment and access to vocational training as
well as "working conditions". In the Act, it is clear from s.6, which reads:
"(1) It is unlawful for a person, in relation to employment by him at an
establishment in Great Britain, to discriminate against a woman:
in the arrangements he makes for the purpose of determining who should be
offered that employment, or
in the terms on which he offers her that employment, or
by refusing or deliberately omitting to offer her that employment.
It is unlawful for a person, in the case of a woman employed by him at an
establishment in Great Britain, to discriminate against her-
in the way he affords her access to opportunities for promotion, transfer or
training, or to any other benefits, facilities or services, or by refusing or
deliberately omitting to afford her access to them, or
by dismissing her, or subjecting her to any other detriment."
67. S.82(1) states that "employment means employment under a contract of
service or of apprenticeship or a contract personally to execute any work or
labour, and related expressions shall be construed accordingly." While,
therefore, s.6(1) looks to the potential conclusion of such a contract, there
is no need for any such contract actually to have been concluded. And neither
subsection is concerned with enforcing contractual entitlement. The Directive
and the Act are aimed at providing relief which affords "real and effective
judicial protection" in respect of discriminatory conduct (see Johnston,
para. 23), rather than relief which reflects any contractual entitlement which
may or may not exist. The Court said in relation to remedies in Von
Colson, para. 18:
"Such measures may include, for example, provisions requiring the employer to
offer a post to the candidate discriminated against, or giving the candidate
adequate financial compensation, backed up where necessary by a system of
fines. However, the directive does not prescribe a specific sanction; it leaves
Member States free to choose between the different solutions suitable for
achieving its objective."
68. In the English Act, this is reflected in the provisions on remedies, found
in ss.65 and 66. Under s.65, the court may choose, as it considers just and
equitable, between the three possibilities of (a) an order declaring the rights
of the complainant and respondent in relation to the act of discrimination, (b)
"an order requiring the respondent to pay to the complainant compensation of an
amount corresponding to any damages he could have been ordered by a county
court .... to pay to the complainant if the complaint had fallen to be dealt
with under section 66", (c) a recommendation that the respondent take within a
specified period action appearing to the tribunal to be practicable for the
purpose of obviating or reducing the adverse effect on the complainant of the
act of discrimination. S.66 provides:
"(1) A claim by any person ("the claimant") that another person ("the
respondent") -
(a) has committed an act of discrimination against the claimant which is
unlawful by virtue of Part III, ....
may be made the subject of civil proceedings in like manner as any other claim
in tort or (in Scotland) for reparation for breach of statutory duty.
(2) Proceedings under subsection (1)-
(a) shall be brought in England and Wales only in the county court, ...."
69. In a claim for tortious damages, the court looks at the actual loss
suffered. In a contractual claim, the court measures damages by reference to
contractual entitlement.
70. Both contractual and, as recent authority examined below confirms, tortious
claims may be affected by illegality. The underlying principle was identified
by Lord Mansfield in Holman v. Johnson (1775) 1 Cowp 341:
"The objection, that a contract is immoral or illegal as between plaintiff and
defendant, sounds at all times very ill in the mouth of the defendant. It is
not for his sake, however, that the objection is ever allowed; but it is
founded in general principles of policy, which the defendant has the advantage
of, contrary to the real justice, as between him and the plaintiff, by
accident, if I may so say. The principle of public policy is this; ex dolo
malo non oritur actio. No court will lend its aid to a man who founds his
cause of action upon an immoral or an illegal act. If, from the plaintiff's
own stating or otherwise, the cause of action appears to arise ex turpi
causa, or the transgression of a positive law of this country, there the
court says he has no right to be assisted. It is upon that ground the court
goes; not for the sake of the defendant, but because they will not lend their
aid to such a plaintiff. So if the plaintiff and defendant were to change
sides, and the defendant was to bring his action against the plaintiff, the
latter would then have the advantage of it; for where both are equally in
fault, potior est conditio defendentis.
The question therefore is, whether, in this case, the plaintiff's demand is
founded upon the ground of any immoral act or contract, or upon the ground of
his being guilty of any thing which is prohibited by a positive law of this
country."
71. The application of this principle in contract thus involves asking whether
the contract was at its outset made for an illegal purpose or prohibited by
statute or whether, if legal at its outset, it has become unenforceable due to
the manner of its performance. The conceptual basis upon which a contract not
illegal or prohibited when made may become unenforceable due to the manner of
its performance is open to debate. Devlin J. concluded in St. John Shipping
Corporation v. Joseph Rank Ltd. [1957] 1 QB 267, 284 that the true analysis
was that this only occurred if "the way in which the contract was performed
turned it into the sort of contract that was prohibited by the statute" (to
which the Employment Appeal Tribunal added the words "or common law" in
Coral Leisure Group Ltd. v. Barnett [1981] ICR 503, 509A-C and
Newland v. Simons & Willer (Hairdressers) Ltd. [1981] ICR 521, 530).
The St. John Shipping case was a case where illegality in performance,
consisting in deliberately overloading the ship and submerging her load line in
breach of the Merchant Shipping (Safety and Loadline Conventions) Act 1932,
although this contributed to the earning of more freight overall, did not
disable the shipowners from enforcing individual bill of lading contracts under
which the excess freight had been earned. On the other side of the line are
cases such as Anderson Ltd. v. Daniel [1924] 1 KB 138 (where the statute
imposed on the plaintiff seller a duty to supply an invoice for the buyer's
protection) and Ashmore, Benson Ltd. v. Dawson Ltd. [1973] 1 WLR 828
(where the statute made it unlawful to use a vehicle not complying with the
regulations). In the latter case, in passages which Peter Gibson LJ has cited,
both Lord Denning MR at p.833 and Scarman LJ at p.836 underlined the need for
both knowledge and participation in the illegal method of performance before a
party might disable himself from suing on the relevant contract.
72. In the context of contract Lord Goff said in Tinsley v. Milligan
[1994] 1 AC 340:
"It is important to observe that, as Lord Mansfield made clear, the principle
is not a principle of justice; it is a principle of policy, whose application
is indiscriminate and so can lead to unfair consequences as between the parties
to litigation. Moreover, the principle allows no room for the exercise of any
discretion by the court in favour of one party or the other."
73. Lord Browne-Wilkinson observed in Tinsley v. Milligan that "the
effect of illegality is not substantive but procedural" (p.374D-E). But this
was a statement made when explaining how an equitable interest might pass under
an illegal transaction, though remaining unenforceable in some circumstances. I
would not myself view the concept of "procedure" as an appropriate
characterisation of the relevant rule of public policy when, for example,
considering the scope allowed under the Treaty of Rome to domestic courts in
procedural matters. The description of the doctrine of illegality as involving
"personal disability" appears more appropriate: cf Hardy v. Motor Insurers'
Bureau [1964] 2 QB 745.
74. Although the underlying principle is as applicable to tort as to contract,
its impact differs. So much so that in its recent consultation paper No. 154,
Illegal Transactions: The Effect of Illegality on Contracts and Trusts, the Law
Commission said that it was not aware that the law on illegality in relation to
tort claims gave rise to any concern, and focused its attention on contracts
and trusts. In contract, the scope for the existence or commission of relevant
illegality - whether in the aim, nature or performance of the contract - is
necessarily greater than is the case in tort.
75. In the first case which I wish to cite on illegality in tort, it was
recognized expressly that circumstances in which a tortious claim may be barred
by illegality may be expected to be rare: National Coal Board v. England
[1954] AC 403, 429 per Lord Asquith (distinguishing negligence by one of two
burglars in handling an explosive charge intended to blow open a safe from
pick-pocketing by the one of the other en route to the premises which they
intend to burgle). This passage was cited in Pitts v. Hunt [1991] 1 QB 24, 42 per Beldam LJ. In that case Beldam LJ also cited and Balcombe LJ
specifically approved the dictum of Mason J in Jackson v. Harrison 138
CLR 438 that:
"If a joint participant in an illegal enterprise is to be denied relief against
a co-participant for injury sustained in that enterprise, the denial of relief
should be related not to the illegal character of the activity but rather to
the character and incidents of the enterprise and to the hazards which are
necessarily inherent in its execution."
76. Dillon LJ preferred (to any test which depended on the court's view of what
the public conscience required or upon an assessment of moral turpitude) a
test, based on Bingham LJ's dichotomy in Saunders v. Edwards [1987] 1
WLR 1116, between "cases where the plaintiff's action in truth arises directly
ex turpi causa and cases where the plaintiff has suffered a genuine wrong to
which allegedly unlawful conduct is incidental .". On the facts in Pitts v.
Hunt a pillion driver's claim against the deceased driver's estate for
personal injuries suffered in the accident which killed the driver failed
because he had been participating jointly with the driver in drunken and
reckless driving, involving attempts to frighten other road users.
77. Cross v. Kirkby (CA, 18 February 2000) was a claim in tort by a hunt
saboteur, seriously injured by a single blow from a farmer who had wrested a
broken baseball bat from the saboteur after the saboteur had committed a whole
series of goading insults, assaults and blows with the bat on the farmer. The
claim failed. Beldam LJ, with whom Otton LJ agreed, quoted Lord Mansfield's
words in Holman v. Johnson, and continued (para. 76):
"I do not believe that there is any general principle that the claimant must
either plead, give evidence of or rely on his own illegality for the principle
to apply. Such a technical approach is entirely absent from Lord Mansfield's
exposition of the principle. I would, however, accept that for the principle
to operate the claim made by the claimant must arise out of criminal or illegal
conduct on his part. In this context "arise out of" clearly denotes a causal
connection with the conduct, a view which is implicit in such different cases
as Lane v Holloway and the recent case to which we
were referred in this court, Standard and Chartered Bank v Pakistan
National Shipping Corporation & Ors, Court of Appeal transcript, Friday 3rd
December, 1999. In my view the principle applies when the claimant's
claim is so closely connected or inextricably bound up with his own criminal or
illegal conduct that the court could not permit him to recover without
appearing to condone that conduct."
78. Judge LJ referred to the distinction drawn by Bingham LJ in Saunders v.
Edwards and adopted by Dillon LJ in Pitts v. Hunt between behaviour
"incidental" to and "directly" connected with the criminal conduct, and
concluded that a claim in tort was not liable to be defeated by the fact that
the claimant was behaving unlawfully or criminally when his cause of action in
tort arose, "unless it is also established that the facts which give rise to it
are inextricably linked with his criminal conduct" (paras. 102-3).
79. While the underlying test therefore remains one of public policy, the test
evolved in this court for its application in a tortious context thus requires
an inextricable link between the facts giving rise to the claim and the
illegality, before any question arises of the court refusing relief on the
grounds of illegality. In practice, as is evident, it requires quite extreme
circumstances before the test will exclude a tort claim.
80. In the present case, the position is in my view as follows:
(A) At the root of the Industrial Tribunal's and Employment Appeal Tribunal's
decisions lie the proposition that Mrs Hall was involved in the illegality in a
manner which would have prevented her from enforcing her contract of employment
by any contractual claim. I agree with Peter Gibson LJ's conclusion that on the
facts of this case this conclusion was itself in error. The contract as made
and as varied was legal. It was at no stage expressly prohibited by any
statute. The suggested illegality arose simply from the method of its
performance, involving the employers' failure to make or account for deductions
to the Revenue and DHSS, and issue of false PAYE slips. Before this could
disable the appellant from enforcing her contract of employment, there would -
applying the statements of Lord Denning MR at p.833 and Scarman LJ at p.836 in
Ashmore, Benson Ltd. v. Dawson Ltd - have to be shown both knowledge and
participation on her part in the illegal method of performance.
Thus, in Coral Leisure Group Ltd. v. Barnett the Employment Appeal
Tribunal held that the Industrial Tribunal had jurisdiction in a claim for
unfair dismissal under the Employment Protection (Consolidation) Act 1978,
although after making an initially lawful contract, the relevant employee had
knowingly participated in the finding of prostitutes for punters and in paying
for them out of funds provided by his employers. The contract of employment
itself, as distinct from the mode of its performance, was not prohibited by
law: see per Browne-Wilkinson J. at p.509. Even minor though inessential
participation by an employee in a scheme for the fraudulent evasion of VAT by
and for the benefit of his employers was held not to preclude a claim for
unfair dismissal under the 1978 Act in Hewcastle Catering Ltd. v. Ahmed
[1992] ICR 626. The reasoning in that case was influenced by the "public
conscience" test, since rejected in Tinsley v. Milligan. But the first
five factors mentioned by Beldam LJ at pp.637-8 would still point to the same
conclusion, although it is unnecessary to form any decided view on that in this
case.
Newland v. Simons & Willer (Hairdressers) Ltd. was concerned with a
similar subject-matter to the present. But the employee had been employed over
the end of a tax year, and any awareness on her part that proper deductions
were not being made was said to have derived from her receipt of her P60 at the
end of that tax year. In the view of the majority in the Employment Appeal
Tribunal the essential question was "Has the employee knowingly been party to a
deception on the revenue?" However, I have to say, reading the judgment, that
the majority appears also to have considered that it would be sufficient to
make her "party to the deception" if she either took part in "or continued
working knowing of the illegal mode of performance by her employers of her
contract of employment": see p.528A-B. Further, the majority took a stern view
towards the argument that, even if the contract "on its face or in its
performance to his knowledge involves a fraud on the revenue", the employee
should not be deprived of his rights under the employment protection
legislation: see p.533D-F. May J. said:
"We have no doubt that Parliament never intended to give the statutory rights
provided for by the relevant employment legislation to those who were knowingly
breaking the law by committing or participating in a fraud on the revenue."
We are not directly concerned with the employment protection legislation, and
the facts are not identical with those in issue in Newland v. Simons &
Willer (Hairdressers) Ltd. But I confess to doubt about both the reasoning
and the outcome in it.
In the present case also, the Industrial Tribunal evidently considered that
knowledge alone would suffice. After contracting lawfully, Mrs Hall was given
payslips which she queried. She was dismissed before the end of any tax year.
The Tribunal reasoned that she "was turning a blind eye to the fact that the
Respondents were not paying tax on part of her income". It is a fact that Mrs
Hall continued to receive payslips and did not report her employers to any
authorities. But, as Peter Gibson LJ has said, there was no positive duty on
Mrs Hall to pay or do anything (cf IRC v. Herd [1993] 1 WLR 1090), nor
was she herself guilty of any unlawful conduct. Her continuing passive receipt
of payslips, after her initial query, cannot in my view be regarded as making
her a party to her employers' plan to deceive, or as amounting to participation
in it such as to preclude her from enforcing her contract of employment. We
need not consider what might have been the position after the end of a tax
year, when it might have become her duty to make a tax declaration in respect
of income which was to her knowledge untaxed. She was dismissed before any tax
year had ever expired. I say only that I should require persuasion that
non-compliance with a duty under the taxes legislation to make her own tax
return then should be viewed as impliedly prohibiting or affecting the
enforceability of her contract of employment. In these circumstances, I
consider that the Industrial Tribunal and Employment Appeal Tribunal were wrong
to regard Mrs Hall as involved in her employer's unlawful scheme in any way
that disabled her under English law from enforcing her contract of employment,
even if she had, by her present claim, been seeking to enforce it.
(B) I turn to consider the position assuming that Mrs Hall's continuing
employment in the knowledge of her employers' scheme to defraud the Revenue and
DHSS should be viewed as disabling her from enforcing her contract of
employment. I find this an uneasy assumption, because, as I have indicated, I
do not accept it. It is therefore difficult and perhaps dangerous to try to
indicate how the Act might apply on such a hypothesis. There are two aspects to
address. The first concerns the reference in s.6(2) to employment, meaning in
the present context a contract of service. The second concerns the actual
claim, of a tortious nature, sought to be made under s.65(1)(b), read with
s.66(1).
Taking the first, the domestic legal requirement, in circumstances within
s.6(2)) of the Act, that there should be employment under a contract
constitutes, at highest, a pre-condition to the complaint and the cause of
action arising in a case of discrimination. Here, the requirement was on the
face of it satisfied by the existence of a contract of employment, which was -
both when originally made and when varied by Mrs Hall's promotion to head chef
- legal. To introduce in the context of a sex discrimination claim the
additional condition that the contract should have been performed legally and
be enforceable as a contract under English law would, construing the Act in the
light of the Directive, appear inappropriate. It would also mean, logically,
that an employee who had participated in illegal performance of her contract of
employment in the manner suggested in this case, would be debarred from
pursuing not merely any claim for financial loss, but any other claim,
including one for injury to feelings in the event of discrimination on the
grounds of sex.
(C) Further, construing the 1975 Act in the light of the Directive, I doubt
whether it is appropriate in any event to treat the statutory requirement of a
contract as subject to domestic conceptions of public policy which would
prevent an employee from enforcing it in the English courts if she had sued
upon it. The Directive contains no such reservation. It speaks of "access to
employment" and "working conditions" without actual reference to contract at
all. These phrases appear (as the majority in Leighton v. Michael
thought at p.1096, para.(6)) to address the factual, rather than contractual,
aspects, of access to employment and conditions of work. The protection of
someone in Mrs Hall's particular position, before and after her promotion,
would also appear to me to fall within the wording and purpose of the Directive
- despite the Industrial Tribunal's finding that she knew that the Inland
Revenue (and presumably the DHSS) were being defrauded. That too was evidently
the view of the Employment Appeal Tribunal in Leighton v. Michael, which
distinguished cases on other domestic employment legislation, governing unfair
dismissal and redundancy. We are not directly concerned with that legislation,
and I see no need to say more about it than that (a) it would require to be
considered according to its own wording and background and (b) I take a more
relaxed view of the objective and aims of the Directive than the majority of
the Employment Appeal Tribunal in Newland v. Simons & Willer
(Hairdressers) Ltd. [1981] ICR 521 was apparently willing to take of the
domestic employment legislation. But that is not to prejudge the extent or
effect of any distinction that may be drawn between them.
Here, the salient facts are that the fraud was not Mrs Hall's. She was in
effect simply confronted with it. She may have had little real choice but to
submit. Bearing in mind the imbalance which may often exist in the bargaining
positions of employer and employee, it would be strange if the purpose of the
Directive did not extend to protect employees from discrimination in such
circumstances. Otherwise, employers - having, in effect, imposed on their
employees unlawful pay conditions as a condition of employment or continued
employment - could thereafter discriminate against them on grounds of sex with
impunity. This is not an extreme case, coming near any of the examples of
employment as a member of a hit-squad, or by a company known to have been set
up for the purpose of committing robberies or washing stolen money which I have
given earlier in this judgment. The language of the English statute should, as
far as possible, be read as offering the same scope of protection as the
Directive. The statutory conception of employment under a contract should, if
possible, be interpreted consistently with the Directive. In my judgment, it
can be by treating it as referring to any actual employment which (a) falls
within the objectives and aims of the Directive where (b) the relevant contract
is one which would be enforceable under domestic law disregarding any personal
disability flowing from the claimant's participation in illegality. The statute
on this basis reflects European law's rejection of any general reservation or
limitation on the application of the Directive not found in the language or
aims of the Directive.
(D) Assuming that the statutory pre-condition in s.6(2) creates no obstacle to
Mrs Hall's claim, I see no basis on which any involvement on Mrs Hall's part in
illegal performance of her contract of employment can or should lead to her
forfeiting any claim to damages for financial loss arising from the sex
discrimination involved in her dismissal. Her claim is not to enforce the
contract. The basis of the claim does not relate to, and any compensation
ordered does not fall to be measured by, any contractual entitlement that the
claimant may have had. The damages recoverable in tort for sex discrimination
involving dismissal do not depend on the period for which the claimant was
employed or the notice period to which she was entitled, as they would in
contract. The claim is for unlawful discrimination based on conduct in
dismissing her from a post in which, whether or not Mrs Hall had a contract
that she could have enforced if she had sued on it, she was in fact receiving
£250 per week. I note in parenthesis that, when she made her tribunal
complaint, the parties completed forms in which she stated, entirely
accurately, her take-home pay, which the respondent admitted. Further, any
compensation ordered by the Industrial Tribunal would not itself be subject to
any tax (Income and Corporation Taxes Act 1988 s.148). The Industrial
Tribunal's reasoning that, since Mrs Hall "had no legal rights that were
destroyed when the contract was brought to an end, consequently she suffered no
losses in law" and could not recover compensation under the Act, is fallacious.
Leaving aside the bar which it is suggested that she faces due to illegality,
Mrs Hall could have claimed damages for sex discrimination, even if her
employers had, when discriminating against her on the ground of her pregnancy,
given her the requisite notice period to terminate her employment. Likewise,
under s.6(1) discrimination would necessarily consist in not offering or
making a contract, or not making it in a particular way or on particular terms.
In these circumstances, I see no basis for regarding any involvement which she
may have had in illegal performance of her contract of employment as directly,
immediately or inextricably connected with the discrimination of which she
complained or with the relief by way of compensation for financial loss which
she now seeks. To adapt Mason J's words to this different situation, neither
the character nor the incidents of the illegality nor any hazards necessarily
inherent in its execution have or had anything to with the discrimination which
she suffered or her resulting claim. This is not, therefore, a case where the
court is, in my view, faced with any conflict between the objective and aims of
the Directive and the result which follows from an application of established
domestic principles governing illegality in tort to the 1975 Act.
81. For these reasons, I agree that this appeal succeeds, and that the matter
should be remitted to the Industrial Tribunal, if possible of the same
constitution, for it to determine the compensation due to Mrs Hall.
MR JUSTICE MOORE-BICK:
82. For the reasons given by Peter Gibson L.J. and Mance L.J. I too am
satisfied that Mrs. Hall is not prevented by illegality from enforcing her
contract with the respondent and that this appeal should therefore be
allowed.
83. I also agree with them that Leighton v Michael [1995] I.C.R. 1091
was correctly decided and that even if Mrs. Hall would have been prevented by
reason of illegality from enforcing her contract of employment as such she
would nonetheless be entitled to recover substantial compensation for wrongful
discrimination under the Sex Discrimination Act 1975.
84. As far as the effect of the Equal Treatment Directive (Council Directive
No. 76/207/EEC) is concerned, I can see force in the submissions made by both
Miss Carss-Frisk and Mr. Hochhauser Q.C. that there can never be any room in
relation to a claim under the Sex Discrimination Act 1975 for the operation of
the rules of domestic public policy reflected in the established law relating
to illegality. However, I share the reservations expressed by Peter Gibson
L.J. and Mance L.J. and in common with them prefer not to express any final
view on this aspect of the argument. I should, however, like to acknowledge
the assistance which we have had from the admirable submissions of both counsel
on this and all other issues which were raised in the course of argument.
Order: Appeal allowed; determination made by the employment
tribunal at the remedies hearing, set aside; Mrs Hall's application remitted to
the tribunal to determine the compensation to which she is entitled.
(Order does not form part of the approved judgment)
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