SPC00541

Payments in lieu of notice - whether made pursuant to a right of employer to give short notice - whether made pursuant to a contractual right of the employee - whether made for abrogation of contract - incorporation of Written Statement and of collective agreements into a contract - terms apt for incorporation - source of payments: whether from employment: section 19 ICTA 1988 - whether derived from employment - section 3 Social Security Contributions and Benefits Act 1992.

THE SPECIAL COMMISSIONERS

	
Appellant

SCA PACKAGING LIMITED			Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Special Commissioner:  Charles Hellier

Sitting in public in London on 8 and 9 March 2006

Kevin Prosser Q.C. and Clive Sheldon of Counsel instructed by Clifford Chance LLP - for the Appellant 

Bruce Carr instructed by the Acting Solicitor for HMRC for the Respondents

© CROWN COPYRIGHT 2006

DECISION

Introduction

1.	At various times between 1996 and 2001 the Appellant made a number of its employees redundant. When it did so it made payments to the redundant employees which generally included sums calculated by reference to unexpired notice periods. The issue in this appeal is whether or not the sums so calculated and paid were emoluments from the relevant employees’ employments. If they were, the Appellant (or “SCA”) should have deducted and accounted for PAYE and National Insurance Contributions.

2.	The statutory language is fairly simple: a payment is made taxable as employment income by section 19 ICTA 88 if it is an emolument from the employment; the payment is subject to National Insurance contributions if it is remuneration or profit earned from the employment. It was accepted by both parties that in relation to the payments at issue the question which determined whether income tax or National Insurance was applicable was the same, and was: was the payment “from” the employee’s employment?

3.	As will become apparent the answer to this question may be affected by whether the payment was made pursuant to a contractual obligation of the employer which formed part of the terms of the employee’s contract of employment. It is therefore necessary to determine for each relevant employee what were the provisions under which the payment was made. This requires first an examination of what the relevant terms of the employment were in each case, and second a determination of whether payments were made under those terms or otherwise.

4.	I heard oral evidence from Caroline Brent who had worked in the Human Resources department of the Appellant since February 1995 and had been HR Director for the Appellant’s parent company in Great Britain between April 2001 and October 2004. She gave evidence directed principally to the way in which redundancies were handled. I also had an agreed bundle of documents before me which included offer letters, written statements of terms and conditions, and redundancy correspondence relating to a selection of employees. It also included a copy of a Consolidated Manual of Agreements dated March 1996 recording agreements reached between the Appellant and the relevant trade unions, and copies of Memoranda of Agreement for most of the years between 1992 and 2002 relating to “Protection of Employment and Compensation for Redundancy” between the same parties. These Memoranda of Agreement set out inter alia the terms for redundancy pay and included statements relating to pay in lieu of notice. The material provisions of these Memoranda were virtually identical. I shall refer to the “Memorandum of Agreement” in this decision as meaning any of them.
5.	The employees to which this appeal relates include employees whose letters of  offer of employment and written statements were not in the bundle before me. Mr Prosser asked me at the outset not to make detailed findings of fact in relation to each employee. I cannot make any findings in relation to employees in respect of which no evidence or agreement of similarity was before me. Thus I shall give this decision in principle in relation to the classes of employees whose details were provided. 

6.	From the documents before me it appeared that there were three classes of employee by reference to which the issues in this appeal fell to be determined:

(i)	employees who commenced employment in and after 1992 who were not office staff;

(ii)	employees who commenced employment before 1992 and who were not office staff;

(iii)	office staff;

7.	The reasons for this classification are that (a) it is suggested by the Appellants that prior to 1992 there were no agreements in force with the trade unions so that such agreements could not be part of the contract on which employees engaged prior to that date were employed, and (b) office staff were engaged on terms which made no reference to such agreements.

8.	The structure of this decision will be that I shall first set out certain facts and then shall discuss the contentions and issues under the following headings:

1.	Were any of the terms of the Memorandum of Agreement incorporated into the employees’ contracts of employment? Paragraphs 19 to 65.

	Under this heading I shall deal with each of the three classes of employee, and whether or not the relevant terms, if not expressly incorporated, were incorporated by custom and practice.

2.	If terms of  the Memorandum of Agreement were incorporated what was the effect of that incorporation on the contract of employment? Paragraphs 66 to 103.

3.	How were redundancy payments actually made? Paragraphs 104 to 115.

4.	Was that part of any payment made which was described or calculated as a payment in lieu of notice, a payment which derived from the relevant employee’s employment? Paragraphs 116 to 173.

	Under this heading I shall consider (a) payments in lieu made to employees in respect of whom there had been express incorporation of the relevant terms of the Memorandum of Agreement into their contracts, (b) payments, where any incorporation of those terms derived from custom and practice, and (c) payments made otherwise than in connection with provisions in the contract of employment.

The Appeal

9.	The Appellant is appealing against the following decisions and determinations of the Respondent.

•	Notices of determinations (under regulation 80 SI 2003/2682) on income tax due on termination payments in the following amounts:

o	1996 - 1997 £30,000 (estimate)
o	1999 - 2000 £12,115.25
o	2000 - 2001 £5,312.78

•	Notices of decision (under section 8 Social Security Contributions (transfer of Functions etc) Act 1999) on National Insurance contributions due on termination payments in the following amounts:

o	1996 - 1997 £9,807.76
o	1999 - 2000 £9,305.06
o	2000 - 2001 £3,749.79

Other facts

Apart from the facts noted above I find the following facts.

10.	The Appellant is an international paper company that produces and sells hygiene products, packaging solutions and paper publications. It has various manufacturing plants located in Great Britain. 

11.	During 1996 - 1997, 1999 - 2000 and 2000 - 2001, the appellant terminated the employment of several employees on the grounds of redundancy and around that time made various payments to those employees. 

12.	Although not all the employees named in the notices of determination and decision were necessarily subject to the terms of the Memorandum of Agreement, the Appellant treated the employees in a manner consistent with the Memorandum of Agreement.

13.	The Appellant did not deduct income tax or National Insurance contributions (“NICs”) from the elements of the severance payments representing pay in lieu of notice (“relevant payments”) on the basis that they were redundancy payments taxable under section 148 Income and Corporation Taxes Act 1988 (“ICTA”) and not emoluments taxable under section 19 ICTA.

14.	On 26 February 2003, the Respondent issued a Notice of Determination in relation to the income tax due on the relevant payments for 1996 - 1997. By letter dated 11 March 2003, the Appellant appealed against this Notice.

15.	On 14 March 2003, the Respondent issued five Notices of Decision in relation to NICs due on the relevant payments for 1996 - 1997. By letter dated 20 March 2003, the Appellant appealed against this Notice.

16.	On 14 September 2005, the Respondent issued two Notices of Determination and a Notice of Decision in relation to the income tax and NICs due on the relevant payments for 1999 - 2000 and 2000 - 2001. By letter dated 10 October 2005, the Appellant appealed against these Notices.

17.	The Appellant accepts that to the extent payments made exceed £30,000, the excess is liable to tax under section 148 TA 88.

18.	It is accepted by the Respondents that the elements of the redundancy payments other than components relating to the payments in lieu of notice were not derived from the employment. No decision or determination was made in respect of those elements.

1.	Were any of the terms of the Memorandum of Agreement incorporated into the employees’ contracts of employment?
(i)	Employees who commenced employment in and after 1992 who were not office staff.

19.	In the case of at least some of these employees at the time they were engaged SCA wrote to the employee offering employment and setting out the most important terms of their offered employment such as salary. In all these cases it is accepted by the Appellant that SCA gave the employee a written statement (the “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.  In the documents in the bundle before me which covered a sample only of the employees to whom this appeal relates, the Written Statements included a paragraph at the foot:

“I have received and understood the statement, concerning my terms and conditions of employment in accordance with [the relevant Act]”,

and space for the employee to sign under that statement and to date his or her signature. I note in particular the words “and understood”. I do so because in other cases before other courts to which I was referred the employee was asked to sign a statement merely to “acknowledge receipt” of the Written Statement. In six of the examples in the bundle (Mr Badcock, Eva Stanley, Avril Ferrari, James Corstorphine, Ian MacDonald and Charles Baikie) the Written Statements had been signed by the employees; in one case (that of Mr Kramer) the copy in the bundle was not signed. With the exception of Mr Corstorphine the signatures were dated before, or within a week after, the commencement of the employment.

20.	Each of the Written Statements (with the exception of that of Avril Ferrari who was a member of the office staff category) contained the following provisions:

“1. Your main terms and conditions of employment whilst employed by this Company will be in accordance with the provisions set out in:

(a)	The National/Local Agreements currently in force with the appropriate trade unions, and/or

(b)	Appropriate sections of the Company Reference File, and/or

(c) 	Letters offering employment.

Copies of these documents as well as [various Acts] are available in the Personnel Department/Works Office…

“2.	The terms and conditions of employment referred to above are concerned with the following matters as may be appropriate:

	…10) Details concerning redundancy rights and procedures.

Any changes in these and other matters will be incorporated in the appropriate documents and the Company undertakes to keep these documents up-to-date.

“3.	You are entitled to receive and are required to give notice of termination of employment in accordance with:

	(a)	Your agreement with the Company; or

	(b)	The provisions of the [relevant Acts]; 

whichever is the longer.”,

although in some cases the statement was more specific as to the exact notice period to be given or received.

21.	In the case of Mr Badcock his first Written Statement was given in November 1983 but a subsequent statement issued in May 1993 included the following provisions:

“Redundancy

If  you were employed at 17 July 1992, you will be entitled to the redundancy terms set out in the attached Appendix for the transition period up to 31 December 1993.

Thereafter your redundancy terms will be as set out in the Manual of Agreements…

	Other Terms and Conditions

Other terms and conditions of employment will be as set out in the Manual of Agreements…

Any provision stated above or in any subsequent addendum which is different from corresponding provision in the Manual of Agreements shall modify or replace as appropriate the provision of the Manual.

	Changes to Terms and Conditions

You will be notified of changes to any of the above terms and conditions following joint discussions between the Company and the unions.”

22.	I refer the Appendix noted in the first of these sections at paragraph 72 below.

23.	Of the employees referred to in the bundle before me a number had originally been employed by Reed Corrugated Case Ltd, and the Written Statement provided by (and returned to) that Company. It was not disputed that the terms which applied to employees’ service with Reed continued to apply to their service with the Appellant (whether because there was simply a change of name of the employer or because of a transfer of undertaking to the Appellant).

24.	In February 1992 a Memorandum of Agreement was entered into between the Appellant and various trade unions. The subject of the agreement was Protection of Employment and Compensation for Redundancy. This agreement was revised in subsequent years. It appeared that the revision had generally been annual. Mr Carr submitted that there was no evidence that there had not been such agreements prior to 1992. I shall return to that submission in the following section in relation to the second category of employees.

25.	In 1992 Memorandum of agreement and the subsequent agreements contained very similar provisions. Each contained provisions relating to:

(i)	the employer taking steps to minimise the need for redundancy;

(ii)	consultation with the unions over redundancy;

(iii)	selection of employees for redundancy; and

(iv)	redundancy terms.

26.	The relevant provisions relating to redundancy terms were in the same form in each of the agreements and provided as follows:

“Scope

Agreement applies to all staff and hourly paid employees in SCA Packaging Ltd whose terms and conditions are governed by the “Bexhill” Manual of Agreements. It excludes those employees on a fixed term or temporary contracts of employment.
	
“5.7	Redundancy Terms
		General
	…Redundancy payments will be based on complete years of continuous service as at the last day of service. When notice is paid in lieu, then the individual’s last day of service will be extended to include the notice period.
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 the greater.
	5.8	Severance Payments for Existing Employees
	Existing employees are defined as those who are in [SCA’s] employment as at 31.12.91.
Redundancy payments will be based on 3 weeks’ pay (2 plus 1) 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 will be subject to a maximum of 2 years (104 weeks) pay or the number of weeks to normal retirement date whichever is the less.
5.9	Transitional Arrangements
In recognition of the fact that other employees of [SCA] have left [SCA] on redundancy terms which were more generous in some respects than the terms set out in this Agreement, [SCA] is prepared to make the following ex gratia payments to individuals with long service employed by [SCA] as at 31.12.91 who are made redundant at some point in the future.	
Complete years of service at 31.12.91	Ex gratia payment	
Less than 5 years	£    500	
5 years or more, but less than 10	£1,000	
10 years or more, but less than 15	£1,500	
15 years or more, but not less than 20	£2,000	
20 years or more, but not less than 25	£2,500	
25 years or more	£3,000	

The maximum limits referred to in para 8 above will still apply i.e. no employee will receive in excess of 104 weeks pay inclusive of redundancy, pay in lieu of notice and ex gratia payment.
5.10	Severance payments for New Employees
	New employees are defined as those who join [SCA] after 31.12.91.
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 2½ weeks pay for each complete year of service.
5 years of more Continuous Service
Redundancy payments will be based on 3 weeks pay for each complete year of service.
Severance pay i.e. redundancy pay plus notice paid in lieu will be subject to a minimum payment of 4 weeks pay i.e. no one will receive any less than 4 weeks pay on termination.
27.	There was also an Appendix with example calculations which I reproduce at paragraph 71 below.

28.	The first question for me is to what extent the Written Statement formed part of the terms and conditions of the employees’ contracts with the Appellant. The Written Statements do not expressly describe themselves as contracts of employment, but instead as statements of the terms and conditions of the employment. The Written Statements did not seem to me to be the contract between employer and employee not least because it did not record the wages or salary to be paid to the employee. But it was a clear representation by the employer that the terms described in it were part of that contract. In the absence of authority to the contrary it seems to me that such a statement, when signed by the employee indicating that it had been received and understood close to the start of the employment, constituted some form of acceptance by the employee that the employee also agreed to those terms as part of his or her contract and therefore they were part of the contract of employment.

29.	In Robertson v British Gas Corporation [1983] ICR 351 the Court of Appeal approved Browne-Wilkinson J’s statement in System Floors (UK) v Daniel 1982 ICR 54 that the status of the statutory written statement was this:

“It provides very strong prima facie evidence of what were the terms of the contract between the parties but does not constitute a written contract between the parties. Nor are the statements of the terms finally conclusive: at most they place a heavy burden on the employer to show that the actual terms of contract are different from those  he has set out in the statutory statement.”

30.	Clearly where the written statement forms an integral part of the offer in an offer letter to the employee it will form part of the employees’ contract. When the statement is delivered with the offer letter and returned to the employer signed, the result is likely to be the same.

31.	In Robertson, at paragraph 12, Akner LJ did not accept that the statutory statement equally placed a heavy burden on the employee, and noted with approval the statement made in the circumstances being considered by Brown-Wilkinson J, namely were those in which the employee signed an acknowledgement that he had received the statement, that “In our view the statement is no more than persuasive, though not conclusive, evidence of [the relevant issue]”. In this case what was signed was more than an acknowledgement.

32.	My task is to decide on the basis of the evidence before me whether on a balance of probabilities the terms of the Written Statements formed part of the terms of the employees’ contracts. In my judgment they did for these reasons:

(i)	they were provided by the employer and imposed a heavy burden on 	the employer to show that the actual contract terms were different;

(ii)	there were no other contractual terms in other documentation before 	me which were at variance with the statements;

(iii)	with one exception they were signed as received and understood by the 	employees, and in all such cases, save one, were so signed close to the 	start of employment or before the employment commenced; as such 	they are persuasive evidence that the employee considered the terms to 	be part of his or her contract.

33.	In the case of Mr Kramer the copy of the Written Statement in the bundle was not signed by him. It is therefore less clear in his case that the terms of the statement formed part of his contract. However, in the absence of any other evidence it seems to me that on the balance of probabilities the terms of the statement do also form part of his contract.

34.	Having decided that the Written Statements formed part of the employees’ contracts the next question is to what extent the provisions of the Memorandum of Agreement formed part of those contracts.

35.	I was referred to the decision of Hobhouse J in Alexander v Standard Telephonics & Cables Ltd [1991] IRLR 286, the judgment of the Court of Appeal in Henry v London General Transport Services Ltd [2002] EWCA Civ 488 and the judgement in National Coal Board v National Union of  Mineworkers [1986] ICR 736.

36.	Each of these cases dealt with the effect on a contract of employment of collective agreements between the employer and the employees’ unions.

37.	In Alexander the statutory statement given to the employee (and acknowledged by him) did not expressly refer to redundancy matters; in this case it did. But Hobhouse J said that even express general words of incorporation do not remove the need to consider whether all the contents of the incorporated document are apt to be terms of the actual contract of employment (see paragraph 26).

38.	I take from those cases and section 179 of the Trade Union and Labour Relations Consolidation Act 1992 the following propositions:

(i)	a collective agreement between an employer and unions is not legally                              	enforceable between the parties unless the agreement expressly so 	provides.  I note that there was no such provision in the documents 	before me;

(ii)	nevertheless provisions of such an agreement can form part of the 	legally 	enforceable contract between the employee and the company;

(iii)	such provisions may form part of that contract if they are expressly 	incorporated into it or if the evidence otherwise establishes the mutual 	intent that they be incorporated (by “custom and practice” or 	otherwise);

(iv)	but even where terms of such an agreement are incorporated the 	question arises as to whether all the provisions of the collective 	agreement are to be treated as part of the employment contract;

(v)	a specific provision in a collective agreement which is not expressly 	incorporated (although there may be express incorporation generally of 	the collective agreement) into the employment contract will be a term 	of that 	contract only if it is “apt” to be a term of that contract;

(vi)	in determining whether a provision is so apt, terms which do not relate 	directly to the relationship between the employer and the employee 	(such as an obligation on the employer to consult with unions, or an 	agreement on behalf of the employer to give consideration to various 	matters are generally inapt for incorporation, whereas terms which 	relate directly to the relationship between the two (such as provision 	for wages, bonus or working time) are generally apt for incorporation.

39.	In Alexander, Hobhouse J, at paragraph 31, summarised the process to be adopted in determining whether a provision is a collective agreement was incorporated into the employment contract. At the end of that paragraph he drew a distinction between (a) a document expressly incorporated into an agreement, where the only question which had to be answered was whether the clause was apt for incorporation, and (b) a document which was not expressly incorporated, in which case he said that as a matter of inferring the contractual intent of the parties both the character of the document and the relevant clauses and whether the provision was apt for incorporation were central to the question of whether the inference of incorporation would be drawn. It will be convenient at this stage to consider both (a) and (b) for the reasons I set out in paragraphs 48 and 49 below.

40.	The Written Statement indicates in clause 1 that the employees’ main terms and conditions “will be in accordance with the provisions set out in the National/Local Agreements currently in force with the appropriate Trade unions”, the Company Reference file and the letter of offer of employment. Clause 2 specifies certain matters which are governed by those documents - it says that those terms and conditions “are concerned with the following matters” and sets out a list. That list encompasses matters which relate directly to the relationship between the employer and the employee:

(i)	hours of work;

(ii)	holiday entitlement;

(iii)	pension scheme rules;

(iv)	sickness payments;

(v)	works rules;

(vi)	safety policy;

(vii)	discipline and dismissal;

(viii)	grievance procedures;

(ix)	union membership; and

(x)	details concerning redundancy rights and procedures.

41.	There seems to me to be no doubt that if, as I have held is the case, the Written Statement forms part of the employment contract, that the provisions in the collective agreement which are “details concerning redundancy rights and procedures” are expressly incorporated into the employment contract, at the very least so far as they are, like the other matters in the list, provisions which touch directly on the relationship between employer and employee. Indeed it seems to me that there is an indication in this list that it is only matters which are apt for incorporation in the sense understood by Hobhouse J which are intended to have been expressly included.

42.	The Memorandum of Agreement between the Appellant and the unions in the bundle before me appears to have been part of a larger suite of agreements. The early versions of the Agreement are headed “Memorandum of Agreement between …” and “Subject: Protection of Employment and Compensation for Redundancy” and start at clause 6.1, other versions relating to later years although in virtually identical terms start at clause 8.1 or 6.1. It seems to me that even if or though these agreements were part of a suite of agreements, the language of express incorporation makes clear that in determining whether any of the terms of the Memorandum are incorporated into the employment contract I should be content to examine the content of this memorandum without regard to the character or content of the other agreements forming part of the same collection of agreements. The clause references I use below refer to the 1992 version of the Memorandum.

43.	Clause 6.1 of the Memorandum relates to measures the company will take (such as restrictions on overtime or recruitment) to avoid redundancy. This does not touch directly on the relationship between employer and employee and were it not for the precise words of clause 2(10) of the Written Statement, would in my judgment clearly be inapt for incorporation into the employment contract. Clause 2(10) however refers to “redundancy rights and procedures” [my emphasis], and the measures described in 6.1 might be said to be redundancy “procedures”. However it seems to me that “procedures” should be taken to relate to those procedures which touch directly upon the redundancy of the employee and not on the measures to be taken by the employer to attempt to avoid redundancy.

44.	Clause 6.2 defines redundancy. It is clearly apt for incorporation. Clause 6.3 to 6.5 relate to redundancy consultation with the unions, voluntary arrangements and the situation in which the company would resort to compulsory redundancy.  Although they relate to the situation in which the waters of redundancy are lapping closer to the employee’s feet, and as a result could more properly be termed “redundancy procedures” their drafting is, in relation to issues other than union consultation, insufficiently mandatory to impose any terms capable of incorporation into the employment contract.

45.	Clause 6.6 deals with selection for redundancy. It imposes obligations on the company to discuss issues with the unions and to consider certain factors in making a selection, but leaves the final decision to the company to be made in the interests of its business. There is, in my view, nothing in this clause apt for incorporation.

46.	Clauses 6.7 to 6.10 make specific detailed provision for redundancy payments. There is nothing woolly in the drafting: it says that “payments will…be made”, that “notice will be based upon [particular features]”, it deals in detail with the transitional arrangements for employees employed on 31 December 1991. These provisions directly concern the relationship between the employer and the employee. It seems to me that by their nature and their drafting they are apt for incorporation into the contract. And although the correct construction of the provisions in relation to terms of notice has been a matter of debate in this case, that debate does not cast such doubt on the cogency of these clauses as to make them insufficiently precise for incorporation. It is instead the kind of debate which could have arisen had the very words in these clauses been directly incorporated into a written contract of employment between employer and employee.

47.	Clause 6.11 provides that the employer will provide assistance to a redundant employee to find alternative work. This to my mind is of the nature of a redundancy procedure and directly affects the relationship between employer and employee. It is clearly and mandatorily drafted. In my view it is apt for incorporation.

48.	I have considered above the effects not only of clauses 6.7 to 6.10 of the Memorandum but also the surrounding clauses. I have done so for two reasons. First, because in the case of employees whose terms of employment did not expressly refer to the Memorandum of Agreement, the approach which Hobhouse J required in Alexander (see paragraph 39 above) requires me to consider the nature of the agreement as a whole and the position  of the relevant clauses in it. If the majority of the agreement is inapt for incorporation then there will be a pre-assumption that other clauses are less likely to be apt. It seems to me that in this case whilst clauses 6.7 - 6.11 are preceded by clauses which may (particularly where there is no express language referring to redundancy procedures in any written agreement with the employee) not be apt, the tenor of clauses 6.7 - 6.11 and the gradient of relevancy and compulsion which is exhibited by the preceding clauses make these clauses apt for incorporation. Whether or not they are incorporated otherwise than expressly is a matter to which I shall return later in this decision.

49.	The second  reason for the slightly longer exegesis is in case I have misunderstood the approach prescribed by Hobhouse J, and it is necessary, even where a collective agreement is expressly incorporated, to consider the nature and character of the agreement.  If that is the correct approach, then for the reasons in the previous paragraph I find that clauses 6.7 to 6.11 are apt for inclusion in the employment contract.

(ii)	  Employees employed before 1992 who were not office staff

50.	Mr Badcock and Eva Stanley were examples in the bundle before me of employees in this category. As noted at paragraph 19 above they received, and signed and returned Written Statements. These statements were in the same terms as those of employees engaged after 1992.

51.	For the reasons set out above I conclude that it is more likely than not that these Written Statements formed part of their contracts of employment.

52.	Mr Badcock originally signed his Written Statement on 21 November 1983. In 1993 his position in the company changed and he was given a new statement of Terms and Conditions of Employment. It was issued in May 1993 and signed and dated by him on 31 August 1993. This second statement was more detailed than the original Written Terms but seems to me for reasons substantially the same as those set out in section 1 above to form part of the terms of his employment. Under the heading Redundancy Terms in that statement it is stated:

“If you were employed at 17 July 1992, you will be entitled to the redundancy terms set out in the attached Appendix for the transition period to 31 December 1993.

Thereafter,  your redundancy terms will be as set out in the Manual Agreements.”

53.	The Respondents did not concede that there were no collective agreements in force prior to 1992 which contained redundancy terms which were the same as, or similar to, those contained in the 1992 Memorandum of Agreement. If there were such terms and they were the same then the analysis in section 1(i) above applies equally to these employees.

54.	I have concluded that the redundancy terms in clauses 6.7 to 6.10 of the Memorandum of Agreement were incorporated into the contracts of these employees for the following reasons:

(i)	the Written Statement incorporates “Agreements currently in force with the appropriate unions”, and indicates that any changes in redundancy rights  “will be incorporated in the appropriate documents and the company undertakes to keep them up to date”. In context it seems to me that “currently” does not mean “at the present time”, but “as may be current from time to time”. That is at least consistent with the Company’s obligations to keep the documents up to date. As a result the formation or variation of an agreement with the unions relating to redundancy would be incorporated into and vary the employment contract; 

(ii)	even if I am wrong in (i) above, it seems likely that employees engaged prior to 1992 and who were still in employment in the relevant years would have become aware that terms negotiated by the company with the unions would always be reflected in their contracts as they were in the contracts of other post 1992 employees who were covered by the collective agreements. The covenant by the company in the Written Terms to keep the documents relating to the contract up to date indicates that the company intended to make the terms known or available to be known and in the context of the mandatory terms supports the inference that it intended to become contractually bound by them. There was no other evidence that such practice was notorious but the evidence of Mrs Brent that the company’s policy was to be fair and equitable at least raises a prima facie conclusion that this would have been the case. And there was no evidence from the Appellant to refute that conclusion; and

(iii)	their Written Statements (or in the case of Mr Badcock his original Written Statement of 21 November 1983) contained at clause 2  (10) the words which appeared in the post 1992 Statements indicating that the National/Local Agreements to which the employment was subject included those concerned with “Details concerning redundancy rights and procedures”. In the absence of evidence to the contrary, it seems likely to me therefore that there were agreements which dealt with those matters, and that they dealt with them in a similar way.

55.	In relation to Mr Badcock’s later statement of Terms and Conditions of employment, it seems to me clear that the words in the Redundancy Terms section have the effect of including the relevant terms of the Memorandum of Agreement to the extent that they were apt for inclusion. The omission from that later statement of the list of specific terms 2(1) to 2(10) does not seem to me materially to affect the conclusion I have drawn in 1(i) above in relation to employees with the standard Written Statement.

(iii)  Office Staff: Employees who did not receive the standard Written Statement

56.	In the examples in the bundle before me there was only one clear case of an employee who had not received a Written Statement in standard form. That was Avril Ferrari. Although Written Statements were not included in the material relating to Mr Miller and Mr Marfell, the documents in the bundle showed them moving from one position to another, and their letters of offer indicated that their terms and conditions relating to redundancy had not changed. I assume that when they were originally employed they were given Written Statements which they signed and returned. If that is not the case then the discussion in this section relating to Avril Ferrari should apply equally to them.

57.	Avril Ferrari was offered employment as a management accountant in a letter dated January 1997. The letter contained the bald terms of employment (salary, hours, pension, notice) and annexed a Statement of Terms and Conditions of employment, a copy of which was to be, and was, signed and returned to the employer. The signature clause indicated that Ms Ferrari had “received and understood the statement… which forms part of [her] Contract of Employment.” It is clear to me that all the terms of that Statement were express terms of her contract with the Appellant.

58.	The Statement makes no reference to redundancy or to the provisions of any collective agreement with the unions, but contains detailed provisions relating to the giving and receipt of notice to terminate the employment. It is clear that no part of the Memorandum of Agreement in force at that time was incorporated into the terms of her employment contract. There is also no evidence that Ms Ferrari would have even been aware of the existence of the Memorandum of Agreement when she accepted the offer made by the Appellant, and on the balance of probabilities I conclude that she would not have known of it or intended it to form part of her employment contract. 

59.	But that is not the end of the matter. A contractual term may become incorporated into a contract through custom and practice. For this to be the case the custom must be reasonable, certain and notorious. It must be so well known as properly to be read into the contract.  It must be a custom so universal that no workman could be supposed to have entered into service without looking to it as part of the contract. (see Henry v London General Transport Services Ltd 2002 EWCA Civ 488 and the judgment of Pill LJ at paragraph 28). A policy adopted by management unilaterally cannot become a term of the employees’ contracts on the grounds that it is an established custom and practice unless it is at least shown that the policy has been drawn to the attention of the employees or has been followed without exception for a substantial period i.e. a period sufficient to support the inference that that policy achieved the status of a contractual term. (see Lord Coulsfield at paragraphs 7 and 8 in Quinn v Calder 1966 IRLR 128). Clear evidence of practice is, however, in actions between employer and employee, required to establish something as potentially nebulous as custom and practice, and there should be scrutiny commensurate with the particular circumstances  (see Pill LJ at paragraph 26 in Henry). There is a difference between the approach to be adopted to the question of the implication of a term from custom and practice in cases between employee and employer, and the approach to be adopted in determining that question between the employer and the Respondents became the onus of proof in the appeal is on the taxpayer. But it seems to me that if the Respondents raise the issue (as Mr Carr did) and the Appellant does not merely deny the issue but produce some believable evidence that the practice is neither certain nor universal nor well known, then clear contrary evidence that it was certain, universal and well known would be needed before it could be concluded on balance that the terms had been incorporated by custom and practice; if the Respondents raise the issue and point to evidence supporting their contention, the Appellant needs to provide good but not necessarily overwhelming evidence of a lack of certainty or notoriety if it is to persuade the tribunal.

60.	Mr Carr pointed out that the redundancy payment received by Ms Ferrari was calculated in accordance with the terms of the Memorandum of Agreement: she received 3 week’s redundancy pay for each completed year of service. He referred to Caroline Brent’s evidence that office staff were generally treated in a manner consistent with the Memorandum of Agreement, and that she knew of no instances in which office staff received less than if they had been covered by the Memorandum of  Agreement. The best evidence available was, he said, that the Memorandum of Agreement terms were followed.

61.	Mr Sheldon submitted that there was no evidence that the practice of following the Memorandum of Agreement for office staff was “notorious”. Even if it was the invariable practice it had to be well known.

62.	Caroline Brent said that in the period 1996 to 2000 there had probably been at least 100 redundancies: she was unable to be more precise than that. I accept that evidence.  She said that redundancy terms were negotiated locally: the company had a decentralised structure with significant local autonomy. The overall company policy she said was to be open and fair. She was asked if  everyone would have known the method used for redundancy pay calculation. She replied that although she could not be sure because she was not generally involved at local level it was not clear that not everyone would have known. She knew of no case where office staff had been paid less than they would have received had the Memorandum of Agreement applied to them, but said that what they received was always negotiated at local level: she would not however have expected them to be treated worse. I accept this evidence.

63.	It seems to me that it is likely that office staff whose terms and conditions made no reference to the collective agreements would not generally have expected to receive the benefits of those agreements. Mrs Brent described the company’s policy  as being equitable or fair and open. It seems likely to me that this would be well known. It would also be likely to be well known that local management had a considerable discretion. There was no evidence before me of the number of office staff who had been made redundant in the relevant period or of the proportion they represented of the whole. If there had been only one or two such redundancies it would be difficult to conclude that a consistent policy had been followed.  If there had been many it could be that a consistent pattern was established. 

64.	Given the paucity of the evidence on this issue I have not found it easy to conclude whether the terms of the Memorandum of Agreement were included in the contracts of office staff by custom and practice, but, on the balance of probabilities, I am persuaded in Avril Ferrari’s case, the only case before me, that they were not. That is for the following reasons:

(i)	the terms were not incorporated into her initial contract, and were unlikely to have been known of by Ms Ferrari at the time that contract was made;

(ii)	incorporation of those terms would therefore have had to have been a variation of that contract;

(iii)	Ms Ferrari worked at Edinburgh for 3 years and 25 days before she left for the maternity leave which preceded her redundancy. The variation would have had to have taken place in that period as a result of the policy being drawn to her attention or consistently followed in that period. In the period of her employment the major redundancies were at Lydbrook in March 2000 and in August 2000 and at Edinburgh (where she worked). When these occurred she was on maternity leave. The policy could not have been incorporated by a custom of which she was unaware and it seems more likely than not that she was not aware of it;

(iv)	she would have been aware of the discretion exercised by local management. Only if there had been redundancies of office staff in Edinburgh which had proceeded on the basis of the Memorandum of Agreement would she have been aware that the practice was consistently followed.

65.	Had Ms Ferrari been employed and present for a period which included redundancies of office staff at Edinburgh or elsewhere then the Appellant would not have discharged the onus of proof that the practice of treating office staff in the same way as if the Memorandum of Agreement had applied to them was not so well known and universal that it would have been regarded as a contractual right of the employee. That is because it did not produce evidence that  the policy of equity and fairness was not well known and was not consistently followed in the case of office staff generally. Evidence of Ms Ferrari’s circumstances was produced. It enabled the conclusion above. There was no evidence in relation to other office staff. That consistency raises grounds for the Respondent’s contention. The Appellant has to rebut it.
	
2.	To the extent that the terms of the Memorandum of Agreement were incorporated what was the effect of that incorporation on the contract of employment so far as concerns pay in lieu of notice?

66.	For the reasons above this discussion is not relevant in the case of office staff in the circumstances of  Avril Ferrari.

67.	There was debate about the proper construction of these clauses in the context of payments in lieu of notice, but the uncertainty as to the proper construction of the clauses was not such as to make them insufficiently cogent to be apt for incorporation. The provisions of the clauses relating to redundancy payments for old and new employees are clear and uncomplicated. What is debated is the proper construction of the references to pay in lieu of notice. Whilst it might be the case that these particular provisions could be so uncertain as to be inapt or unenforceable it seems to me that their situation in the midst of clear and enforceable terms requires at the least an effort to give effect to the provisions. 

68.	I have set out in detail the provisions of clause 5.7 to 5.10 at paragraph 26 above, but it helps at this stage to identify the particular phrases relating to pay in lieu of notice, and notice:

“5.7 Redundancy Terms 

…When notice is paid in lieu, then the individuals last day of service will be extended to include the notice period [for the purpose of calculating the number of complete year’s service qualify 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.

5.8 Severance Payments for Existing Employees [i.e. those in SCA’s employment on 31.12.91]

…Payment will also be made of any unexpired period of notice as at the date of termination.

Severance pay will be subject to a maximum of two years (104 weeks) pay or the number of weeks to normal retirement date whichever is the less.”

5.10 Severance payments for New Employees [i.e. those joining after 31.12.91]

…Severance pay i.e. redundancy pay plus notice paid in lieu will be subject to a minimum payment of 4 weeks’ pay i.e. no one will receive any less than 4 weeks’ pay on termination.

69.	I note that there is a contrast between Existing Employees and New Employees in relation to the cap on the total payment. For Existing Employees there is a cap of 104 weeks’ pay placed on the sum of the redundancy payment and the payment in lieu of notice; for New Employees no such limitation is prescribed. In practice of course such a limitation would (given that redundancy pay was 3 weeks for every year in employment) bite only on employees with at least 25 years’ service (assuming notice periods of 1 week per year’s service), and therefore it would not be until 2016 that any limitation could be relevant. However the point remains that the Memorandum of agreements treats the two classes separately and imposes no cap on New Employees.

70.	Indeed in relation to New Employees the provision of the Memorandum are even more sparse in relation to payments in lieu: in relation to Existing employees it is expressly stated that “payment will also be made of any unexpired period of notice”; whereas for new Employees that provision does not appear: all that appears is the provision of a minimum severance payment of 4 weeks’ pay. 

71.	Appendix 1 provides:
FORMULA FOR CALCULATION OF REDUNDANCY 
WHERE NOTICE IS WORKED

•	An existing employee with one years service
3 weeks plus £500 ex gratia

•	An existing employee with 10 years service
30 weeks plus £1500 ex gratia

•	An existing employee with 25 years service
Payment equals 75 weeks plus £3000
Check that amount does not exceed 104 weeks maximum pay.
If weekly wage is £250 then times 104 = £26,000
75 weeks x £250 = £18,750 + £3,000 ex gratia = £21,750
If notice is not worked a further 12 weeks at £250 will be paid. Therefore total payment = £24,750
This total is within the limit of £26,000.

•	An existing employee with 30 years service
90 weeks plus £3,000 ex gratia
Check that the amount does not exceed 104 weeks maximum pay.
If weekly wage is £250 then times 104 = £26,000
90 weeks x £250 = £22,500 + £3,000 ex gratia = £25,000
If notice not worked a further 12 weeks at £250 could be paid. Therefore total payments could be £28,500. However this exceeds the ceiling of £26,000 so maximum ex gratia of £500 would apply in this case to bring total payments to £26,000.

•	An existing employee with 35 years’ service
Maximum entitlement would be 104 weeks irrespective or whether or not notice is worked.
72.	I should also mention here the Appendix referred to in connection with Mr Badcock’s employment at Histon at paragraph 21 above. It was entitled “Histon Redundancy Arrangements”.  That Appendix it will be recalled applied to Mr Badcock up to 31 December 1993 and thereafter his redundancy terms were to be governed by the Manual of Agreements. The Appendix was not therefore applicable when Mr Badcock was made redundant in 1996, but I refer to its terms because of their drafting. There were seven paragraphs. The first four dealt with the calculation of redundancy amounts. Paragraph 4 stated:

“ All employees will receive pay in lieu of notice based on their contractual notice period or the minimum legal entitlement whichever is the greater.”

73.	In outline the parties’ contentions as to the proper construction of these clauses in relation to pay in lieu of notice were these:-

(1)	Mr Carr’s primary contention was that they gave the right to the employer to terminate the contract on short notice in the circumstances of redundancy, and if the contract was so terminated the employer became obliged to make a payment in lieu of notice.

(2)	If that was not right then Mr Carr’s alternative contention was that the clauses gave the employee a right to receive a payment in lieu of notice (in addition to any redundancy payment) if an employer dismissed the employee on short notice in a redundancy.

(3)	Mr Prosser and Mr Sheldon say that the clauses confer no right on the employer to terminate on short notice but simply confer an obligation on the employer to offer to make a payment in lieu of notice as part of a redundancy package when the employee is asked to leave on short notice - an offer which the employee may accept or decline.

(1)	Mr Carr’s primary contention
74.	Mr Carr’s primary contention was that the proper construction of these clauses was that on redundancy they created a contractual right for the employer to terminate the contract before the end of the contractual notice period and, if the employer exercised that right, they gave the employee a contractual right to receive a payment in lieu of notice.

75.	Mr Carr did not argue that the employer’s right to terminate without notice on making a payment in lieu was an implied term of the contract: he did not suggest that such a term was necessary to give the contract effect or was a term which the parties would, if asked, at the time, have said “oh, of course” it should be included. His argument was that this right existed as a matter of the proper construction of the words used. He said that this construction was supported by the mandatory language of the provisions: “when notice is paid in lieu”, “payment will also be made”, “no employee will receive an excess of 104 weeks…” [my emphasis]. In the Appendix he drew attention to the phrase in examples C and D “If notice is not worked”, and in example E “whether or not notice is worked”.

76.	He accepted that in circumstances other than redundancy the employer had no right to terminate before the end of the notice period and to make a payment in lieu of notice. But Mr Carr said the position was different where an employee was made redundant. He said that the right to give short notice  was a valuable one to the employer: it gave the employer the flexibility it would want on closing a branch or a factory. Whilst in other situations the employer’s desire that an employee no longer attend work could be satisfied by sending him home on paid garden leave for the remainder of his notice period, terminating the employment and making a payment in lieu of notice relieved the employer of the administrative burden of keeping the employee on its books for the notice period. Where a branch was being shut down and accounts staff laid off, this flexibility could be desirable. Mrs Brent had said in evidence that the closure timetable would depend upon customers and the business, but she agreed that once the date of closure had been set there was no need to retain employees and the employer would need them to go on the date given to them. Early terminations and payment in lieu ensured a clean break. Thus he said his construction of the clauses made commercial sense. 

77.	Mr Sheldon submitted that these clauses did not give the employer the right to terminate an employee’s contract early with a payment in lieu of notice for the following reasons.

78.	First he said that the right to proper notice was an important right for an employee. Minimum notice periods were conferred by statute on employees by what is now section 86 of the Employment Rights Act 1996. Whilst it was possible for an employer and employee to substitute the right to statutory notice by a payment in lieu of notice, clear words would be needed to abrogate such a right. He said a heavy burden would be placed upon the Appellant if it wished to argue (as against an employee) that these clauses had abrogated the employee’s right to notice.

79.	Second, he said that for some employees working out their notice rather than having their contract terminated and receiving a payment in lieu could be valuable. It could be more difficult to find new employment when a person is unemployed than to do so when in employment: a notice period preserved this benefit of employment.

80.	This could also be the case where pension or other benefits depended upon the employee’s age or number of complete years worked when leaving employment. He pointed to the examples of Mr Browne and Mr Miller who had received no payment in lieu having apparently worked for the whole of their notice periods.

81.	Third, he said that the tenor of the language in the Memorandum of Agreement was that of imposing burdens on the employer rather than imposing obligations on the employee. The employer’s notice rights were spelled out clearly in the Written Statement; it needed something clear to take them away: a document written in terms of obligations placed on the employer did not satisfy that requirement.

82.	Fourth, the cap of 104 weeks pay placed on the total redundancy payment could have the effect of reducing the amount of the pay in lieu of notice. It was not clear whether the cap caused all elements of the payment to abate equally although there was some suggestion in Example D (see paragraph 71 above) that the ex gratia payment abated before other elements of the payment. It could not be right that the clauses removed not only the right to notice but also the right to part of the payment in lieu of notice.

(2)	Mr Carr’s Alternative
83.	Even if the clauses did not confer a right on the employer to give short notice Mr Carr said that it was clear that they conferred a right on the employee. They spoke of “entitlement” and indicated that the employee “will receive” a payment. There must be something on the nature of a right flowing from the contract. That right was greater than simply a right to receive an offer which included a payment in lieu of notice. It was a right which was contingent on a redundancy event occurring and the employer asking the employee whether he would go on short notice. If the employee agreed to short notice that triggered the contractual entitlement to the payment. That payment would be made under the contract it was not a form of liquidated damages for a breach by the employer. Mr Carr described this analysis of the payment in lieu of notice as a hybrid between a Type 2 and Type 3 payment - using the nomenclature from Delaney v Staples described in paragraph 117 below.

84.	Mr Carr asked me to consider the example of an employee who would normally be entitled to 8 weeks notice. The employer decided to make him redundant on 6 weeks notice. If the employer said to him “I want you to leave in 6 weeks, there is your redundancy cheque”, and the cheque did not include payment in lieu of notice for the remaining two weeks, then he said that the proper construction of the contract would be that the employee had the right to sue for two weeks’ money - not as damages for breach of the contract but for a debt under the contract.

85.	Mr Carr said that this approach to the construction of the contract was preferable to one under which the payment related only to a breach of the contract: one should start by looking for an interpretation which gave meaning to the language used when the parties were complying with their obligations under the contract rather than when they were in breach of it, and only if it were not possible to construe the terms as operating during compliance with the contract should they be viewed as providing for liquidated damages.

(3)	The Appellant’s offer analysis
86.	The Appellant submits that the clauses should be construed as an undertaking given by the employer (to the unions) that where it terminates, or proposes to terminate, the employee’s contract on short notice contrary to the employee’s contractual rights, it will make, or offer to make, a payment in lieu to the employee. So that in circumstances where the employer was acting, or would otherwise have been acting in breach of the employee’s rights by terminating on short notice for which the employee could claim damages, the employer undertook to pay or offer to pay payment in lieu of notice as part of the redundancy package, to which the employee would be entitled without deduction for mitigation or proof of loss.

87.	Mr Carr says that to the extent that this construction provides for liquidated damages it is at odds with the nature of the provisions in the contract - the words used do not readily convey the understanding that the parties were contemplating a breach of contract and pre estimating the amount of a loss; and in so far as this construction requires the employer to make an offer on specific terms, he says it is artificial construct not present in the words of the contract.

Discussion
88.	First of all, it seems to me that the terms and context of the provisions in the Memorandum of Agreement are totally unsuited to being construed as provisions for liquidated damages on breach of the contract. The payment in lieu provisions are an integral part of the provisions dealing with redundancy payments. The redundancy payments are clearly intended as applying as part of the performance of the contract and as giving rights under the contract rather than on its breach. And the language used in the provisions deals, not with loss, but with the right to payment.

89.	Secondly, I do not regard the provision of the Memorandum of Agreement as providing a right to the employer to terminate on short notice. That is for the following reasons:

(i)	in the Written Statement the provision relating to notice are laid out in a separate clause (clause 3) from the provisions incorporating the Memorandum of Agreement;

(ii)	that clause is not expressed to be subject to the other provisions of the Written Statement, and its position following the other clauses suggests to me that in the case of inconsistency between it and the other clauses, its terms should prevail;

(iii)	clause 2 of the Written Statement incorporates provision in the Memorandum of Agreement concerning redundancy “rights and procedures”; that language is not peculiarly well suited to the incorporation of short notice provisions;

(iv)	although the redundancy provisions of the Memorandum of Agreement provide for a specific situation, and the specific provisions could therefore be taken to prevail of the more general language of clause 3, there is no clear, specific provision in the Memorandum giving the employer the right to terminate on short notice;

(v)	I accept that a period of notice during which an employee remains employed may be important to an employee, and that clear words would be expected to abrogate the period of notice. It also seems to me that clear words such as those in Rex Stewart Jeffries Partner Ginsberg Ltd v Parker 1988 IRLR 483: “your service may be determined by the giving in writing of six calendar months’ notice on either side or the payment of six months’ salary in lieu thereof”, are needed to abrogate  the employee’s rights to the notice required under the Employment Protection (Consolidation) Act 1978 or its predecessors or successors. The provisions in the Memorandum of Agreement are not clear in this respect. In particular the paragraph preceding the heading Severance payments for Existing Employees expressly provides for notice periods in the case of redundancy; three sentences later appear the words: “[p]ayment will also be made of any unexpired period of notice at the date of termination.” Those words are not words clearly abrogating the right to notice just set out; 

(vi)	whilst it is possible that those drafting the Memorandum assumed that short notice with payment in lieu could be given under the provisions of the employment contract apart from the Memorandum, such an assumption cannot affect the interpretation of the Written Statement or require the Memorandum to be interpreted as permitting short notice to be given; and

(vii)	lastly the Histon Redundancy Arrangements Note (referred to at paragraph 105 below) says:

“ Payment will also be made of any unexpired period of notice…”

	Although there is little difference, this seems to me to be more likely to confer on an employer the right to terminate on short notice than the words in the Memorandum of Agreement.

90.	Third it does not seem to me that the provisions of the Memorandum envisage an obligation on the employer to make a formal offer to the employee of payment in lieu of notice: there is nothing in them which is redolent of such a requirement being accepted by the employer.

91.	In seeking to determine the effect of these provisions I note first of all that at the end of the paragraph “Selection for Redundancy”, and immediately preceding “Redundancy Terms” is a paragraph which states that:

“The detailed arrangements for handling any redundancy situation will be a matter for local Branch determination subject to the conditions set out in this Memorandum of Agreement. The Dispute procedures will apply as necessary where local agreement cannot be reached.”
92.	Although this paragraph is under the heading “Selection for Redundancy”, its terms seem to me to be designed to cover other aspects of “handling any redundancy situation”. They indicate that the detail of such a situation is left to be handled locally at the branch.

93.	Next I note that, later on under the heading “severance Payments for Existing Employees” there is a statement that an:

“additional one week’s pay [per year of service] will only be paid in the event of co-operation from employees in achieving an orderly run down of the business …”
94.	Such co-operation it seems to me might well extend, where sought by local management, to accepting termination on short notice.

95.	Thirdly I note that for Existing employees the arrangements provide for the possibility of an extended notice period: 12 weeks or the contractual period “whichever is the greater”. The employer is here conceding (or purporting to concede) more generous notice periods for Existing employees on redundancy.

96.	Lastly I recall that the Memorandum says very little about New employees and payments in lieu - merely providing for a minimum payment of 4 weeks’ pay encompassing any payment in lieu and any redundancy payment. For Existing Employees the 104 weeks’ cap is applied and there is the additional statement that “payment will be made of any unexpired notice as at the date of termination”. It seems to me that the effect of the words of the Memorandum in relation to New Employees and payments in lieu cannot be great. But the tenor of the paragraphs does not suggest a material difference is intended in relation to payments in lieu between Existing and New Employees other than in relation to the cap of 104 weeks’ pay.

97.	Taking the relevant sections as a whole it seems to me that their effect is this: if the employer wished to terminate an employee’s contract by reason of redundancy then:

(i)	it was required to give the normal notice period (or for Existing Employees 12 weeks’ notice if greater);

(ii)	but it could ask (although it was not obliged to do so) the employee as part of the orderly run down of the business to accept short notice;

(iii)	if the employee was an Existing Employee then accepting short notice triggered the right to a payment in lieu under (and capped by) the contract; if the employee was a New Employee any right to a payment in lieu would arise under the terms of any offer made by the employee when asking the employee to go on short notice (but see paragraph 98 below). In each case however the agreement of the employee to go on short notice varied the terms of the contract of employment. If the employee did not accept then the employer had no contractual right to dismiss on short notice, but if the employer had given notice it remained contractually obliged to make the redundancy payment under the contract;

(iv)	if an employee accepted shorter notice his contract remained on foot but was amended by the agreement to take short notice. He then became entitled under that amended contract to a sum which incorporated the redundancy payments and the payment in lieu of notice - subject in the case of Existing Employees to the 104 weeks’ cap, and in the case of New Employees to the 4 weeks’ minimum;

(v)	if (as I suspect would be unlikely in a planned negotiated redundancy) the employee was asked to go on no notice and agreed, the amendment to the contract would be more drastic but the redundancy payment and the payment in lieu would still be payable under the amended contract; and

(vi)	the contractual obligations of the parties came to an end when the employee had worked to the end of the agreed short notice period, and the employer had made the payment under the contract.

98.	I have distinguished between Existing Employees and New Employees. In the case of the former it seems clear to me that the amount to be paid if short notice is agreed is set by the contract to be “pay in lieu” i.e. the amount which would have been earned had notice been worked; in the case of New Employees it would be set by agreement and could be different but there is a strong indication that it should be the same amount. For reasons I shall expand later I do not believe this uncertainty in relation to New Employees affects the tax treatment.

99.	I tested my conclusion in the following way. If a contract provides that “in the event of termination of your employment by the employer you will be entitled to a notice period or to a payment in lieu of notice” its effect is that if the contract is terminated by the employer without notice then the employee is entitled to the amount of the payment in lieu - not as a payment of damages for breach of the contract, but as a contractual entitlement.

100.	On the other hand, if a contract provides that a period of notice must be given to terminate the contract but it is agreed that “the employer may make a payment in lieu of notice to the employee” then the employer has a choice if he wishes to terminate the contract without notice: either he may make the payment in lieu and terminate the contract in accordance with its terms, or he may terminate summarily in breach of the contract. In the latter case the employee has a right to damages for breach of contract which, like all damages, are subject to the duty to mitigate; in the former case, as in the case of the contract described in the preceding paragraph, the employee’s right is to the sum specified in the contract unaffected by any issues of mitigation.

101.	The language of the Memorandum of Agreement falls into the category of the first example in the following respect: it provides that the payment “will” be made. The language is consistent with a contractual right given to the employee to insist that he be paid an amount in lieu of notice. Such an amount would be a right to a fixed sum rather than a right to damages subject to mitigation.

102.	So far this conclusion relates only to the rights of the employee but does not answer the question of when that right arises or whether the employee is required to accept the payment instead of working out his notice. It seems to me that the difficulty underlying this question relates to whether or not an employee can insist on working out his notice as a general matter (even when his contract purports to give him that right). If an employee cannot do so (any more than an employer could compel him or her to remain the employer’s servant) then, unless the words “will be entitled” are to be construed merely as providing a measure for liquidated damages on the employer’s breach of the contract (for which function they are totally unsuited), all that they can do is either:

(a)	provide a contractual right to the set amount if the employer terminates 	without notice. Effectively, in those circumstances, they provide that 	an employer will not be able to breach the contract by summary 	termination or 	termination without adequate notice but will instead 	become liable to pay under the contract the specified amount. In 	effect then the words confer on the employer the right to terminate on 	short notice. Conferring such a right by the back door seems to me at 	odds with the nature of the agreement. In this case I do not believe the 	words can have that effect; or

(b)	provide the terms which, if the employer wishes to terminate without 	breach 	on short notice, it must offer as to payment in lieu.

The latter seems to me therefore to be the only possibility in this case.

103.	If, on the other hand, as a matter of general law, an employee can insist on treating a contract as extant and working out his notice period under it, then again the incorporated provisions of the Memorandum (particularly in the case of Existing Employees) provide terms under which the employee can acquiesce to short notice and receive a payment in lieu as part of his redundancy severance pay under the contract. In other words the nature of the provisions leads to the same conclusion on either approach.

3.	How were the redundancy payments actually made?
104.	From Caroline Brent’s evidence I find the following:

(i)	the Appellant delegated management of its branch operations to local management which was given a substantial degree of autonomy;

(ii)	redundancy arrangements would be negotiated by local branch management with the relevant unions. Central support would be provided as required depending upon the size of the redundancy exercise and local expertise;

(iii)	central management’s role was related to strategic decisions and not to the nuts and bolts of the redundancy arrangements;

(iv)	the provisions of the Memorandum of Agreement would have been in the minds of the negotiators as the basis for the negotiation of the arrangements;

(v)	the strategic objective of the Appellant was to be fair and equitable at local level. It was unlikely that any employee would receive less than the specified amounts in the Memorandum of Agreement even if the employee was not among those whose employment was covered by it. It was also unlikely that any employee received more than the amounts set out in those agreements.

(vi)	The arrangements negotiated by local management with the unions would include matters related to notice periods and whether notice would be worked or whether part would be paid in lieu, but the implementation of the redundancy plan would be subject to, and would in the outcome vary with, matters such as the amount of available work and customer orders. Plans would have to be revisited and employees could be asked to leave earlier than originally intended, or to work out their notice periods, or remain in employment beyond the originally set termination date.

(vii)	In the period 1995 to 2001 the company made at least 100 employees redundant in the UK.

105.	In August 1996 a document entitled “General Guidelines on Redundancy Entitlement” was prepared and issued to employees at Histon at the time the redundancy consultation their started. (I note for clarity that this is not the document attached to Mr Badcock’s statement referred to at paragraphs 22 and 72 above). The document dealt with many of the matters in the Memorandum of Agreement. Under the heading “Notice Payments” it stated:

“Employees are entitled to receive formal notice of redundancy based on 1 week’s notice for every year of continuous service up to a maximum of 12 weeks or the individual’s contractual notice period which ever is the longer.

“In the majority of cases, individuals will be given formal notice of redundancy and will be expected to work their notice period.

“In some circumstances it will not be possible to identify the exact date that someone will be able to leave the company sufficiently far in advance. In such circumstances individuals will receive the balance of any notice period not able to be worked, as a lump sum payment.”

106.	In relation to this I first note that it cannot affect the proper construction of the employment contract: if it evinces the belief that the employer could terminate on short notice, that belief may have been erroneous, or the employer could simply have been trying to persuade the employee that the employer had that right. Secondly I note that it does not shed light on the nature of the legal arrangements under which the payments were made. But it is indicative of what actually happened.

107.	The redundancies relevant to the appeal took place at the Appellant’s branches at Histon (1996), Lydbrook (1999/2000 and 2001/2002) and Edinburgh (2001). The documentation in the bundle showed that different formulations had been used in letters to employees in each case.

(i)	At Histon five employees were made redundant. Copies of the letters enclosing the redundancy cheques were available in the bundle in two cases only. They each made reference to the “balance” of x weeks’ compensation for loss of office and enclosed a schedule headed “Redundancy Terms as outlined in the Memorandum of Agreement…”. In that schedule payment for notice not worked was described as “Compensation for Loss of Office”. A copy of the letter had been signed and returned to “acknowledge safe receipt”. There was no indication as to when or whether any agreement to work short notice had been reached other than, possibly, the reference to the “balance” of a period of weeks, which suggested short but not immediate notice, and therefore some earlier communication.

(ii)	At Lydbrook 27 employees were made redundant in 1999 - 2000 and eight in 2000 - 2001. A copy of only one letter was available. (In the absence of any indication to the contrary I have taken other letters to have been in the same form). The letter is written “[f]urther to our recent discussions”. There was therefore previous communication. It gives notice of termination of employment with effect on 31 March 2000. The letter indicates that the employee “will be entitled to redundancy payments as per the Memorandum of Agreement”. It indicates that the employee “will be entitled to payment for the unexpired period of [his] notice entitlement”. The employee has signed a copy of the letter under the rubric “I hereby accept the terms and conditions stated above and will leave the company on 31 March 2000.” The date of the letter is unclear but it was signed by the employee on 29 February 2000 before the date of termination.

(iii)	At Edinburgh six employees were made redundant in 2000 - 2001. Copies of the redundancy documentation for all six were available in the bundle. Copies of letters of Notification of Redundancy were signed by the relevant employee under a rubric accepting the contents of the letter and the sums stated in full and final settlement of any present or future claims the employee might have against SCA Packaging Limited (Scotland). In three cases an earlier letter entitled “Terms of Redundancy” asked the employee to sign a copy of the letter “to formalise your acceptance of this offer.” Where it possible to determine the dates of the letters it appears that they, and the acceptances, were dated prior to the termination of the employment. The calculation of the redundancy payments made no reference in any case to the Memorandum of Agreement, but the calculations were in accordance with its terms. For Avril Ferrari, 1 month’s “payment in lieu of notice” was included in the calculation; for those of the other employees who received payments relating to notice, the description of that part of the payment was “Notice Payment”.

108.	In each case the calculation of redundancy pay was in accordance with the terms of the Memorandum of Agreement. With two exceptions the part of the payment representing payment in lieu of notice was in accordance with the Memorandum of Agreement. Those two exceptional cases were those of Mr Kramer, who was given an extended period of notice but was released early on finding new employment, and that of Mr Miller, whose calculation discloses no notice payment being made because it would have increased the total payment to over 104 weeks’ pay.

109.	Leaving aside the issue of amounts paid in lieu of notice it is clear to me that the amounts paid in each case were made in accordance with the Memorandum of Agreement and not under different arrangements locally and specifically negotiated.

110.	The notice periods worked and paid in lieu differ between the employees. Some worked part of their notice period, and were paid for the remainder, some worked the full notice period, one was given an extended notice period.

111.	Mr Prosser drew my attention to the Edinburgh letters describing the terms of redundancy as an “offer” by the Appellant. However the terminology used in these letters does not affect my conclusion on the proper construction of the Agreement. Indeed it seems to me that the use of this phrase in these letters indicates or records an agreement or a contract formed separately from the contract of employment: a contract under which the employer agrees to vary his contract so as to take short notice so that at the end of his contract he is paid in lieu of notice in addition to his redundancy payment under the contract.

112.	These arrangements for working all or part of a notice period are consistent with my construction of the clauses of the Memorandum of Agreement: the employer has asked the employee as part of the arrangements for the orderly run down of the business to accept short notice. The employee can accept or reject that request: if he accepts the request he will receive a payment in lieu of notice as part of his redundancy package. The letters to the employees formalise the request and the response. There will have been prior discussion with the unions. In the case of Lydbrook and Edinburgh there is evidence of prior discussions with the employee, and I conclude that the same would have been the case at Histon given the Histon Redundancy Note described at paragraph 105 above. The employee knows what is coming: the letters generally say “following our discussions” or indicate some prior agreement. He then receives the letter he expects. He may or may not have known that he could have sought to work out his notice and yet receive his redundancy payment, but generally he will not mind receiving a payment in lieu. He makes formal assent to the agreement with his employer varying the terms of his contract by signing and returning a copy of the letter.

113.	An alternative approach would be to say that the effect of an agreement to take short notice was not an amendment to the original contract but its abrogation and replacement. I do not believe that is supported by the factual context. Nor is it a permissible legal conclusion: the variation agreed to would not go to the root of the contract - it is important but not fundamental. In particular the right to the redundancy payment was unaffected.

114.	I should for completeness mention three employees whose total redundancy payment included no notice payment or who were capped:

(i)	Mr Browne at Histon was entitled to twelve weeks’ notice, but he requested to work beyond the end of his full notice period. He did not leave SCA until 22 January 1967 since that date was his 60th birthday, which meant that he was then able to qualify for the Early Retirement Allowance (payable as a supplement to the SCA Pension to individuals between the ages of 60 and 65 who were over 60 years old at the date of their retirement). Accordingly, he was not paid any compensation for loss of office.

Mr Browne’s treatment is consistent with my approach to the construction of the clauses of the Memorandum of Agreement.

(ii)	Mr Baikie at Edinburgh was 37 weeks from retirement: for every week he worked he lost 3 weeks’ redundancy pay. He was entitled to 12 weeks’ notice but time actually worked and holidays accounted for 6 weeks. He left entitled to 6 weeks’ pay in lieu, but because his redundancy entitlement was capped at 37 weeks’ and his service with the company otherwise entitled him to 54 weeks’ notice, the pay in lieu of notice did not go to swell the aggregate payment he received.

This treatment is not inconsistent with the construction I have adopted of the relevant clauses of the Memorandum of Agreement.

(iii)	Mr Miller at Edinburgh was given notice on 18 July 2000 for his employment to terminate on 30 September 2000 which was 10 weeks’ later. His service qualified for 117 weeks’ of redundancy pay which was capped at 104 weeks.  His total payment include no amount in respect of pay in lieu of notice whereas had his employment terminated 2 weeks later he would have received two weeks’ money for working.

It seems to me that in taking 10 weeks’ paid work and retiring at a month end Mr Miller may have agreed a package with the company which suited him. His treatment does not appear to compel the conclusion that he was forced to go 2 weeks early or that it was otherwise than in accordance with my construction of the clauses of the Memorandum of Agreement.

115.	Accordingly I conclude that the arrangements in practice for redundancy did not give rise to, or flow from, agreements made otherwise than in accordance with the construction I have adopted at paragraph 97 above of the Memorandum of Agreement (I am not saying here otherwise than “under” the relevant provision of the Memorandum of Agreement). The nature of the payments thus flows from that construction and not from other agreements or from payments made to compensate for a breach of agreement different from those I have set out at paragraph 97 above. 

4.	Was that part of any payment which was described or calculated as a payment in lieu of notice (or the equivalent), a payment derived from the relevant employee’s employment?

116.	The meaning of emoluments “from” employment in the context of section 19 has been considered in a significant number of cases, and by the House of Lords on nine occasions. In relation to the general approach to the meaning of the words I was referred to Shilton v Wilmshurst (1991) 64 TC 78 and Hochstrasser v Mayes (1959) 38 TC 673, and in relation to their application in the case of payments made in connection with  the termination or variation of employment to the cases I discuss below.

117.	In the discussion of the circumstances in which a payment may be made on termination, the classification adopted by Lord Browne-Wilkinson in Delaney v Staples (1992) ICR 483 has proved to be a useful starting point in the description of the various types of payment in lieu of notice. He set out these principle categories:

Type 1:	the employer gives proper notice to terminate the contract and puts the employee on garden leave. There is no breach. Any sum paid is wages;
	
Type 2:	the contract of employment provides expressly that the employment may be terminated either by notice or on payment of a sum in lieu of notice. If the employer summarily dismisses the employee and makes the payment, the employer is not in breach but the payment is not for work to be done under the contract.
	
Type 3:	at the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice. The employer is not in breach by dismissing summarily and the payment is not remuneration for work done.
	
Type 4:	without the agreement of the employee the employer summarily dismisses the employee and tenders a payment in lieu of proper notice. The employee is in breach of contract and the payment is on account of the employee’s claim for damages for breach of contract.	

118.	The cases discussed below deal with situations generally within Type 2 or Type 3 or at some point in a continuum between them. Before turning to those cases it is convenient to consider Mairs v Haughey (1994) 1 AC 303. The principle issue in that case was whether a cash payment made to an employee for giving up non-statutory contingent redundancy rights was an emolument from the employee’s employment. Lord Woolf said (at page 319D):

“It is inevitable that if a payment is made in substitution for a payment which might, subject to a contingency, have been payable that the nature of the payment which is made in lieu will be affected by the nature of the payment which might otherwise have been made.”

119.	Lord Woolf then turned to consider the nature of the payments under the redundancy scheme. He held, for reasons to which I shall return, that such payments would not have been from the employment and that because “a payment made to satisfy a contingent right to a payment derives its character from the nature of the payment it replaces… a lump sum paid in lieu of the right to receive the redundancy payment was not chargeable as an emolument under Schedule E”.

120.	Lord Woolf identified a number of characteristics of a redundancy payment which distinguished it from an emolument from employment (see page 321 G to 322 B):

(i)	it is to compensate or relieve from distress an employee for what can be the unfortunate consequences of being unemployed;

(ii)	it is payable after the employment has come to an end, and is not in the nature of deferred remuneration; and

(iii)	it is payable only in limited circumstances and there will be no entitlement if the employee leaves of his own accord.

121.	Finally, I note that Lord Woolf dismissed the proposition that because the payment was due under a contract of employment it was therefore necessarily taxable. Reliance had been placed by the Revenue on a paragraph from Lord Wilberforce’s speech in Comptroller - General v Knight (1973) AC 428 where he had said that two propositions were common ground: first (citing Henry v Foster) that a sum paid under a contract of employment was taxable even though received on termination, and second (citing Henley v Murray) that a sum paid for abrogation of the contract was not. Lord Woolf indicated that these were general propositions and subject to exceptions.

122.	I should start by mentioning Henry v Foster 16 TC 605 since it is referred to above. There a payment due to a director under the Article 109 of the company’s articles on his ceasing to be a director was held to be taxable because it was of the nature of deferred remuneration.

123.	In the instant case the right to the payment does not arise under the terms of the agreement on which the employee originally agreed to serve: it arises under the terms of that agreement as varied by the later acceptance of short notice.

124.	In Dale v De Soissons (1950) 32 TC 188,  Colonel de Soissons was employed under a contract lasting three years but the right was given to the employer company to make his term a shorter one; if it exercised that right it had to pay specified sums by way of compensation for loss of office. The company exercised its right and made the payment. It was argued that the payment represented a sum paid in consideration for the cancellation of rights under the agreement and so did not derive from his employment. Sir Raymond Evershed M.R. noted that the line between cases where a payment was taxable and those where it was not was a little wobbly, but held that the sum Colonel de Soissons received was something to which he was entitled as part of the terms on which he promised to serve - a sum to which he was contractually entitled under the terms of his agreement and as part of the bargain he had made - and that therefore it derived from his employment and not from the surrender or cancellation of his rights. In the instant case the right to payment does not arise under the terms of the agreement under which the employee originally agreed to serve: it arises under the terms of that agreement as varied by the later agreement to accept short notice.

125.	On the other side of the wobbly line lie Hunter v Dewhurst (1932)  16 TC 605 and Henley v Murray (1950) 31 TC 351. In Hunter v Dewhurst,  Commander Dewhurst was a director of a company, and had a right under Article 109 of the Articles of the company (similar to the right in Henry v Foster) to five years’ remuneration  if he ceased to be a director. He gave up this right (whilst remaining a director) for a payment of £10,000. It was argued that the nature of that payment was the same as the payment he would have received had he resigned and received payment under Article 109 and that the nature of that payment was remuneration - deferred remuneration - for services rendered. The House of Lords, by a 3:2 majority held that the payment did not arise from the contract of service but from the release of the company’s obligations under Article 109. It was a payment under a new contract and not a reward for services rendered or to be rendered. Lord Atkin said (at page; 645):

“It seems to me that a sum of money paid to obtain a release from a contingent liability under a contract of employment cannot be said to be received “under” the contract, is not for services rendered or to be rendered under the contract of employment”.

126.	Lord Warrington held that the sum paid was capital and not therefore “profits” from the employment.

127.	In Henley v Murray, Mr Henley had a contract of employment under which he was to serve to a fixed date whereafter the contract was terminable by three month’s notice on either side. Pressure was brought upon his employer for his contract to be terminated before the fixed date. The employer brought pressure to bear on Mr Henley for him to go. Mr Henley was willing to submit to that pressure to sever his connection and to put his contract to an end in return for a lump sum as compensation or consideration for his giving up altogether his contractual rights and ceasing to serve the company - for resigning. Sir Raymond Evershed M.R. said of this factual matrix “It is far removed from the case of an amicable arrangement for the mutual convenience of both parties though the result might not generally differ. And I am not saying what, if the case had been of the latter kind, the proper conclusion would be”. The Court of Appeal held that the sum was not taxable under Schedule E.

128.	Sir Raymond Evershed M.R. drew a distinction between cases where a payment is made but a contract of employment persists albeit in modified form on the one hand, and on the other hand a case where the contract itself “goes altogether and some sum becomes payable for the consideration of the total abandonment of all the contractual rights which the other party had under the contract”. He held that Mr Henley’s case fell into the second category: the sum was not paid for past or future services and so did not fall within Schedule E.

129.	Somervell LJ came to the same conclusion but by a slightly different route. He started from the proposition that damages paid by an employer for wrongful dismissal were not within Schedule E, and going “by stages, that if you take a case where equally the employer dismisses his employee and the damages are agreed without litigation, the fact that they are agreed instead of being awarded…. cannot affect their” tax status. He found that the sum Mr Henley received must be “in the same position as would have been a sum for damages for wrongful dismissal.”

130.	Jenkins LJ followed the route adopted by the Master of the Rolls: he regarded the sum as paid in consideration of Mr Henley surrendering his right to serve down to the end of his contractual period and not, on the facts, remuneration for past services, or payment in respect of continued engagement but with leave of absence for the remainder of the contractual term.

131.	Somervell LJ made clear at the end of his judgment that he was dealing with a case where the initiative for the termination came from the employer and not that of a “mutual agreement between the employer and the employed that the service should be ended abruptly and a sum paid.” This echoes the Master of the Rolls’ comments about an amicable arrangement for mutual convenience. It is clear however that neither of them were saying that mere agreement between employer and employed took one outwith their reasoning - for there was precisely such agreement in Mr Henley’s case. What they were referring to in my view was the situation of an amicable unforced termination, and, in particular, such a termination not initiated by the employer. In the instant case the redundancies of the employees will have been initiated by the employer. Although some employees may have been happy to have been made redundant this was not the amicable arrangement for mutual convenience which Sir Raymond Evershed and Somervell LJ had in mind.

132.	In EMI Group Electronics Ltd v Coldicolt (1999) 71 TC 455, the question was “whether a payment in lieu of notice made in pursuance of a contractual provision, agreed at the outset of the employment, which enables the employer to terminate the employment on making that payment [was] properly to be regarded as an emolument from that employment”. It therefore concerned a Type 2 payment unlike the payments in the instant case (on the basis of my findings above).

133.	Chadwick LJ reviewed the authorities. He started with the decisions of the House of Lords in Hochstrasser v Mayes (1959) 38 TC 673 and Shilton v Wilmshurst (1991) 64 TC 78 and asked whether the payment in lieu was paid to the employee for “acting as or being an employee” or was “an emolument from being or becoming an employee”. He answered that initial question in the affirmative and said:

“The point can, I think, be illuminated by considering the related question “why is the employee entitled to six months’ notice of the employer’s intention to terminate his employment?” The answer must be “… because that was the security, or continuity, of employment what the employee required as an inducement to enter into the contract of employment”. The answer to the question “why is the employee entitled to a payment agreed to his salary for the remainder of the six month period if his employment is terminated by less than six months’ notice?” must be the same: “…that was the security, or continuity, of salary which he required as an inducement to enter the employment”.

134.	Chadwick LJ went on to consider whether there was authority which compelled a contrary conclusion. He considered Henry v Foster and Hunter v Dewhurst and noted that the two decisions provided a striking illustration of the difference between “a payment on termination which is made pursuant to an obligation entered into at the commencement of the employment and a payment on termination which is made pursuant to an agreement to waive or release an existing obligation entered into at the commencement of the employment”. He went on to consider Henley v Murray and Dale v de Soissons and found that there was a true analogy between Dale v de Soissons and the facts he was considering: although in one case the amount of the payment was fixed at the outset and in the other it was fixed by reference to salary at the time of termination, in both cases “the bargain made at commencement of the employment was that the employee should have the security of employment - or the security of a right to continue receiving  salary - for a given period; or that, in the alternative and at the option of the employer, the employee should receive an additional payment on termination.”

135.	Chadwick LJ also considered submissions of the parties based in effect on Lord Woolf’s statement in Mairs v Haughey that “a payment to satisfy a contingent right to a payment derives its character from the nature of the payment it replaced”. Despite the authority of this proposition Chadwick LJ said “I am not convinced that it is necessarily helpful to press the “replacement” principle too far in this field, where fine distinctions abound. But it is a useful guide”. He held that in the case before him the better analysis if this approach was used was to “regard the payments in lieu as replacing the salary which the employee would have been entitled to receive had he been given” full notice.

136.	In passing I note that Chadwick LJ’s reluctance to apply the replacement principle might be explained thus: if I were entitled to receive from you either an apple or a pear, at your option, and you gave me the pear then it would be unusual to say that the pear was a replacement for the apple or vice versa. On the other hand, if I am entitled to an apple and give up the right to the apple in return for the receipt of a pear then it would be a more normal use of language to say that I received the pear as a replacement for the apple. It seems to me that it was in this latter sense of replacement that the word and the principle were used in Mairs v Haughey. In the case where an employer has a choice to give notice or to make a payment in lieu, the receipt of salary during a notice period would not normally be regarded as a replacement for payment in lieu of notice.

137.	In Richardson v Delaney 2001 STC 1328, Mr Delaney was employed under a contract under which he was entitled to 18 months’ notice or at the option of the employer pay in lieu of notice. The employer gave notice to terminate and sent Mr Delaney home on garden leave. Following some further negotiation the contract was terminated and the employer paid the sum of £75,000. Had the contract been terminated immediately and the £75,000 been paid under the contractual provision for pay in lieu of notice, there would have been no question that the payment would have been an emolument from the employment. But instead, four weeks after the notice to terminate had been given - in which four weeks salary continued together with the other incidents of the contract (other than attendance at the employer’s premises) - the parties came to an agreement and the termination of the contract was “to some extent at any rate, on the basis of an ad hoc agreement between the parties”. The total amount received by the taxpayer was close to what he would have received had he been given 18 months’ pay in lieu of notice.

138.	Lloyd J noted that those circumstances were closer to those of Type 3 although not entirely foreign to Type 2. In his judgment Lloyd J reviews the judgment of Chadwick LJ in EMI v Coldicott but does not refer to Henley v Murray (although Chadwick LJ does consider that case in his judgment). Towards the end of his judgment (at paragraphs 65 to 67) he says this:

“As I say the circumstances are not precisely within the ambit of the previous decision in EMI and of course they are further away still from Dale v de Soissons. But it is fair to note that if on [the date notice to terminate was originally given] the employer had tendered £90,000… by way of payment in lieu of notice, it is clear that that payment would have an emolument from the employment… Equally, if, rather than pay in lieu of notice, the notice [had taken] effect in 18 month’s time… the monthly salary… would have been subject to tax.

“The question, then, is how can it be said that by giving notice…, retaining the taxpayer in employment for four weeks, paying him for that period… and then agreeing with him a package for the immediate termination of the employment after four weeks, which in economic terms… is close to what he would have been… paid if [immediate notice had been given and payment in lieu made],… how can that variation between [the two] procedures, both of which would be subject to tax, how can this intermediate course manage to escape being subject to tax?

“In my judgement, the answer is that it does not. The only way in which it could is… the payment of damages or other compensation for a breach of contract by the employer…”

139.	I note in this reasoning echoes of the approach adopted by Somervell LJ in Henley v Murray: going “by steps”, and of the “replacement” principle from Mairs v Haughey. The difficulty, it seems to me, with applying the first of these principles is deciding at which end of the line you start: if you start with a taxable payment for working then by stages you can reach a payment of damages representing what would have been paid for working, and if you start at the other end of the line with a non-taxable damages payment you can reach a payment for working. At some stage you must reach a red signal which prevents you progressing to the next stop. The difficulty with the replacement principle is in correctly identifying the nature (rather than the amount) of what is replaced. In Henley v Murray the payment made was also economically the same as what Mr Henley would have received had he continued to work, and yet the payment was held to derive from the abandonment of contractual rights rather than from the employment. It seems to me that, if this principle is to be applied, then in identifying what is replaced the quest must be for the nature of what is replaced rather than its amount, and that the amount is not always a particularly good indication of its nature. In Richardson v Delaney the employer was entitled to terminate the contract by making payment in lieu of notice; in the instant case I have found that the Appellants are not so entitled. The reasoning in Richardson v Delaney does not seem to me to compel the conclusion that the relevant payments are taxable in this case.

Discussion
(a)  payments which were made to employees in respect of whom there had been express incorporation of the relevant terms of the Memorandum of Agreement into their contracts

140.	In the instant case I have found that where the relevant terms of the Memorandum had been incorporated, the payments in lieu which were made resulted from a later agreement between the employer and the employee as to the period for which notice should be worked and the period for which it should be paid in lieu, and that that agreement varied the terms of the original employment contract. And that amended contract delivered both the redundancy payment and any payment in lieu. The payments were thus made under the employment contracts as amended by that agreement. In the case of Existing Employees the original contract provided that  amount of the payment was “pay in lieu of notice” (i.e. the amount that would have been paid for working the period) and was affected by the cap in the original employment contract; in the case of New Employees the amount of the payment may have been determined by that contract but could instead be found to have been determined by the later variation agreement with the employer (I expressed no firm view on that issue).

141.	Thus the payment could (particularly perhaps in the case of Existing Employees) be said to have been made under the amended contract of employment much in the same way as if the contract of employment had provided rates of pay for overtime working, and, in response to a request for the employee to work overtime, the employee had done so and had been paid under the contract.

142.	However, the fact that a payment is made under the terms of the contract does not seem to me to be an end to the matter: it does not lead inevitably to the conclusion that the payment was from the employment. As I note at paragraph 121 above Lord Woolf in Mairs v Haughey made it clear that the fact that a payment was made under a contract did not necessarily make it taxable; instead the question remained: whence did the payment come? In the case of the overtime working it is clear that the payment would come from being an employee; in the case of any redundancy payment that might have been made to Ms Haughey it would have come from something else. But both payments would have been made under the employment contract.

143.	Mr Prosser says that the payment comes from the employee giving up his right under the contract to continue to serve - his right to a notice period. He distinguishes Dale v de Soissons  thus: there the employer had a right to terminate the contract and an obligation to pay - there was nothing for the employee to give up; here the employer’s obligation arises only because the employee has given something up. Likewise in relation to EMI v Coldicott Mr Prosser points to Chadwick LJ’s description of the analogy between Dale v de Soissons and the facts in EMI v Coldicott where he says (at p495) that in both cases the bargain was made at the commencement of the employment where at the option of the employer the sum should become payable under the contract; in the instant case the employer did not have that option.

144.	Mr Prosser points to Henley v Murray. He says that if the sum came from the abrogation of the employee’s right to serve it did not come from the employment even if the amount paid came from the contract.

145.	Lord Radcliffe in Hochstrosser v Mayes said that, for a sum to be derived from employment,

“it was not sufficient to render [it] assessable that the employee would not have received it unless he had been an employee”.

Clearly the employees in the instant case would not have received the payments had they not been employees under their contracts; but this is not enough:

“it is assessable if paid to him in return for acting as or being an employee”;

the payments in Henley v Murray were not paid in return for acting as, or being an employee because they were paid for abrogating the whole of contract; the payments in Dale v de Soissons were paid in return for acting as, or being an employee because they were part of the bargain under which Colonel de Soissons served and in return for his service. The payments made by the Appellant were paid, not for the employee continuing to act as an employee, but for agreeing to take short notice, and in the case of Existing Employees (and possibly in the case of New Employees) were paid in amounts determined by the bargain under which the employees originally agreed to serve and were paid together with the redundancy element under the terms of the contract.

146.	If a contract of employment provided that an employee could sell his car to his employer if the two of them agreed, and that if they did agree then a set sum would be paid, then if that sale took place and the sum were paid it would be clear to me that the totality of the sum received did not derive from the employee’s employment: at least part of it would derive from the car, or the agreement to sell the car, even though the price was fixed under the employment contract. Not all the sum would be received for being, becoming or acting as an employee; but part of it might be - especially to the extent that it exceeded the market value of the car.

147.	If it is correct to treat, as I have, the payment by the Appellant to the employee as resulting from both the renunciation of the right to work notice and (particularly in the case of Existing Employees) the mechanism in the contract of employment for the calculation of the amount payable, then two questions arise:

(i)	is any payment for the renunciation of a right to a notice period derived from the employment? and

(ii)	is any part of the payment, because it is made in an amount determined by the original employment agreement, to be treated as deriving separately from employment under that agreement?

148.	It seems to me that, notwithstanding Richardson v Delaney, I am bound by Henley v Murray to conclude that a payment for giving up the whole of an employment contract is not taxable. But here only a part of the rights under the contract was renounced - the right to work notice: the employee retained his other rights under the contract (including the rights to redundancy payments), the contract has been amended and has stayed on foot. The employee has agreed to an amendment to the contract (albeit one as a result of which the contract would last for a shorter time) and not to its abrogation. 

149.	The term amended was a right under the contract which in my view was directly connected with his employment. As a result for the reasons set out in the following paragraphs it seems to me that the source of the payment was not the abrogation of the contract but the change in his rights as an employee and therefore that the payment derived from his employment.

150.	Suppose an employee is engaged under a contract under which the employer is required to give 6 months notice and has no right to dismiss on short notice. Suppose that the employer approaches the employee and says “If you agree to reduce your notice period to the statutory minimum I will pay you £10,000”. The employee agrees, the payment is made and the contract and the employment continues. What is the status of £10,000? Is it derived from the employment? In my judgment it is. In Hamblett v Godfrey 1987 STC 60 (which was in the bundle of cases but which we did not discuss at the hearing) Purchas LJ discussed the payment received by Ms Hamblett in return for the loss of her trade union rights. He noted that these rights were directly connected with the fact of the taxpayer’s employment. He contrasted such rights with membership of a golf club: if the latter had been somehow removed by the employer in return for payment to the employee he did not see that payment as arising from the employment, whereas the payment in respect of the union rights did because the rights were directly connected with the employee’s employment: its source was the employment. A right to notice is, it seems to me, directly connected with the employment (the right being given as an inducement to enter into the employment): a payment received for turning it to account by surrendering it therefore comes from the employment.

151.	The surrender of one of the rights under a contract is different from the surrender or abrogation of all rights under the contract. In Henley v Murray Sir Raymond Evershed drew a distinction between a case where the contract persists although the right of one party to call upon the other for performance of its terms may be modified, and a second class where the contract itself goes altogether. The facts of Henley v Murray fell into the latter category. His reasoning and conclusion applied to that category. The modification of a notice provision would I believe fall into his first category.  A conclusion that a payment for such modification may be taxable is not prevented by Henley v Murray.

152.	But does this analysis run up against the rock of the reasoning in Hunter v Dewhurst and Lord Atkin’s statement that a “sum of money paid to obtain a release from a contingent liability under a contract of employment cannot be said to be received “under” the contract, is not for services rendered or to be rendered under the contract”? It seems to me that (even leaving aside Chadwick LJ’s observation that it was possible to detect in Lord Woolf’s speech in Mairs v Haughey less than unqualified support for the decision in Hunter v Dewhurst) it does not. That is for three reasons:

(i)	Lord Atkin’s statement does not represent the reasoning of all of the three of their Lordships who held for Mr Dewhurst. Lord Warrington specifically limited himself to saying that the sum was capital and therefore not profits; it seems to me that that approach is difficult to reconcile with the approach of Lord Templeman in Shilton v Wilmshurst and of Lord Woolf in Mairs v Haughey; but if the payment for the renunciation  of redundancy rights in Mairs v Haughey was not capital, then all the more so would be a payment which involved giving up the right to receive income from working a notice period.

(ii)	Lord Thankerton bases his decision on the fact that the payment “was not a reward for services to be rendered” and “were payments which arose from the release of obligations under Article 109 [and accordingly in his opinion] they did not arise from the office of director but in spite of it”. The first part of this is difficult to reconcile with the speech of Lord Templeman in Shilton v Wilmshurst, and the latter affords a distinction in the instant case: a payment to release a right to a notice period would not arise “in spite of” the employment.

(iii)	Even if Lord Atkin’s speech represented the reasoning of all their Lordships, there is a difference between a simple contingent liability to make a payment and a liability to continue to employ and to pay an employee during a notice period: this release of the latter has more in common with “an agreement made between an employer and his servant under which, instead of the whole or part of a periodic salary, a single amount is paid and received in respect of the employment” which per Viscount Simon is Tilley v Wales 1943 25 TC 136 was taxable (see Chadwick LJ at page 493 in EMI v Coldicott).

153.	Therefore it seems to me that there is a difference between an agreement to accept short notice in return for a payment in lieu where that agreement and payment put an end to the contract completely and an agreement made to modify the contract during its currency. In the former case the payment is the consideration for the total abandonment of the contract which “goes altogether” (as Sir Raymond Evershed said in Henley v Murray); in the latter case the contract continues although some part of it has been turned to account.

154.	In the instant case the effect of the employee’s agreement to short notice is not immediately to abrogate the contract. The contract may continue for the period during which notice is actually worked, and will continue to provide the right to the redundancy payments due under it. It is true that the cessation of the contract will follow hard on the heels of the agreement to take short notice (and to that extent differs from my example in paragraph 150 above), but that cessation is separate from the agreement and arises not as a result of that agreement (though it is hastened by it) but as a result of the employer’s earlier determination to terminate the contract by reason of redundancy.

155.	For these reasons it seems to me that in this case that part of any payments in lieu which derives from the agreement to leave on short notice is “from” the employment. It remains for me to consider whether any part of the payment falls separately to be treated as taxable because its calculation fell to made under the employment agreement. If any part of the payment was, by reason of the employment contract, larger than it would otherwise have been, it therefore may have been taxable to the same extent that payment received from the sale of the car  which exceeded its value in the example in paragraph 146 above could to the extent of that excess have been taxable.

156.	However it seems to me that a payment equal to the salary which would have been earned had the employee continued in employment is not as a factual matter greater than the value of the right given up. Thus no part of the payment is taxable on the grounds that its amount is determined  by the contract. It is for this reason that no distinction falls to be made between Existing Employees and New Employees in relation to the source of their receipt, and that it was not necessary for me to determine in the case of New Employees whether the amounts payable were exclusively determined by the original contract.

Mairs v Haughey: two final points

157.	First, the Appellant submits that the purpose of the undertaking in the Memorandum of Agreement was to compensate the employee for the loss caused by making him or her redundant: the payment in lieu was part and parcel of the overall package of “compensation for redundancy”. That it says is confirmed not only by the fact that it was expressly so described in the heading of the Memorandum of Agreement but also by the fact that the total payment to be made on redundancy (including the pay in lieu element) was subject to a minimum and a maximum. The redundancy payment and the payment in lieu of notice stood together: there was no right to a payment in lieu under the contract unless it was part of the redundancy payment. The total payment made was compensation for redundancy, the payment in lieu was described (in the Memorandum of Agreement) as part of it and it was payable in the same limited circumstances as, and had to be brought into account (in calculating the maximum and minimum payment) together with, the redundancy payment.

158.	Therefore, the Appellant says, the payment in lieu shared the same character as, and has the same source as, the redundancy payment, which was not the employment but the wish to compensate for the unfortunate effects of losing employment by reason of redundancy. On the authority of Mairs v Haughey it was therefore not taxable.

159.	Mr Carr says that merely because a payment is made on a redundancy does not mean that the payment shares the characterisation of a payment to compensate for redundancy. He  says that the right of an employee to notice  is given by a contract for a different purpose from the purpose for which a right to a redundancy payment is given, and that where payment is made in respect of notice it is of the same character as the notice it replaces and derives from the employment. The fact that both the redundancy payment and the payment in lieu were in the Memorandum of Agreement did not mean they had the same source.

160.	It seems to me that the fact that a payment in lieu of notice is made at the same time as or by reference to documentation which also governs, a redundancy payment cannot affect the source of the payment. However, in the instant case there are two other features which may be of more relevance to the payment: first that it is made only in connection with redundancy, and second that its amount is affected by the redundancy calculation mechanism. I note that in the High Court in  EMI v Coldicott Neuberger J said: “In my judgment a PILON is neither “deferred payment of wages or salary” or a “redundancy payment”. If there can be said to be a spectrum of types of payment, from the view of Sch E, I consider that a PILON falls somewhere in the narrow are between those two types of payment on the spectrum”. It may be that the precise circumstances of the payment may move it along that spectrum in one direction or another. On the analysis I have adopted of the contractual nature of the payment I do not believe that the mere fact that it is only paid in connection with redundancy moves it along the spectrum: it remains compensation for giving up a contractual right and not for redundancy and (although subject to the maximum and minimum types) remains affected by the period of notice given up. The second feature - the potential application of the maximum and minimum is more troublesome.

161.	The cap at a maximum of 104 weeks bites only in the case of longer serving employees (generally with more than 30 years’ service), and the minimum (4 weeks pay) for those with less than 2 years’ service. Although there is little to go on in the drafting, I see the minimum as providing additional redundancy compensation rather than payment in lieu because it ensures a minimum sum on redundancy. The maximum would affect the employee’s attitude to a request from the employer that he or she should work short notice. Example D in Appendix I for the Memorandum of Agreement shows the effect of the maximum as reducing the ex gratia element of the payment rather than the payment in lieu of notice. Example E shows that an employee with 35 years’ service would receive nothing extra for agreeing to work short notice.

162.	In these cases it seems to me that on my analysis of the contractual provision, the employer will be saying to the employee: “I would like you to go on short notice. If you do I will pay you according to the calculation in the Memorandum of Agreement, but that will mean you get no value for giving up your right to notice. The choice is up to you: it may be that you are happy to take the money, it may be that you are approaching retirement and the effect of that is that you would be better off going sooner rather than later; or it my be that you want to work your notice”. On that basis it does not seem to me that the existence of the cap affects the nature of any payment in lieu made - the employee’s agreement in relation to the notice period is separate from the employer’s agreement to provide redundancy compensation and the employee’s receipt flows from his agreement and is not redundancy compensation. Although the payment in lieu shares characteristics (ii) and (iii) referred to in paragraph 120 above; it does not share characteristic (i): it is not compensation for the effects of redundancy but for taking short notice.

163.	Second, in EMI v Coldicott Chadwick LJ (at page 500 C- D), having expressed doubts about the use of the replacement principle says that the better analysis in that case seemed to him to regard the payment in lieu as replacing the salary which the employee would have been entitled to receive had he been given fall notice. It seems to me that on the facts of the instant case as I have analysed them, the use of the principle in a manner similar to its use in Mairs v Haughey is possible. Here the payment is made for giving up the right to notice. That right was, for the reasons Chadwick LJ enumerated at p490 H and I, a right of employment - a right derived from his employment, and its replacement - a sum of money paid otherwise than for the abrogation of the whole of his employment contract - is therefore better to be regarded as also so derived.

164.	I conclude that payments in lieu made to employees whose contracts incorporated the terms of the Memorandum of Agreement (in particular therefore employees employed after 1992 who were not office staff) were derived from their employment.

(b)	payments the right to which may derive from custom and practice

165.	On the analysis I have adopted above it makes no difference whether the terms of the Memorandum of Agreement were expressly incorporated or incorporated through custom and practice. In both cases the employee’s contract entitled him to a period of notice, in both cases the employee may have agreed to a lesser period of notice in return for a payment, and in both cases the payment was made under the contract as varied. The conclusion is therefore the same: in these circumstances the payment derived from the employment.

(c)	payments made otherwise than pursuant to provisions in the contract of employment

166.	This will be relevant principally to office staff such as Avril Ferrari (but subject to the comments made at paragraphs 65 and 66 above).

167.	Such employees had no right to a redundancy payment under their contract. Unlike the employees in categories (a) and (b) their contracts did not remain on foot to deliver their redundancy payments. Instead they were offered a payment which comprised an element described as redundancy compensation, and an element relating to their notice period in return for agreeing to leave employment on a given date.

168.	It seems to me that in these cases the payments were not in return for the modification of their contracts but for the cancellation of the contracts. The contracts disappeared in their entirety. There was no pre-existing right to the redundancy payment element: it was consequent only on the abrogation and paid only under the agreement to abrogate. The payment was made pursuant to the terms of an agreement to terminate those contracts. Henley v Murray is authority for the conclusion that such sums are not derived from employment.

169.	That conclusion is unaffected by the division of the sum into redundancy amounts and amounts for pay in lieu of notice because it was agreement to accept payment, and the subsequent payment, of the combined sum which terminated the contract. It also seems clear to me that there is nothing in the decisions of the House of Lords after Henley v Murray which casts doubt on the reasoning in that case. Mr Carr offered no criticism of it and Chadworth LJ in EMI did not doubt it as good law. The payment for the abrogation of the contract is “not paid as a reward for past services or as an inducement to enter into the contract and provide future services but is paid for [another] reason” (per Lord Templeman in Shilton v Wilmshurst) it is therefore not received from the employment.

170.	Mr Carr submitted that where a payment in lieu is made as a matter of course by an employer over a period of time to employees on their being made redundant, such a payment amounts to an emolument from employment even if it falls short of a contractual entitlement. He said (and I agree) that an emolument need not be a contractual right for it to be taxable (a tip given to a waiter is a clear example). In the present case he said that the evidence demonstrated that on each occasion on which employment was terminated by reason of redundancy on short notice a payment in lieu was made which therefore came from the employment.

171.	I cannot agree. The fact that a payment is made habitually does not determine where it comes from.

172.	If an employer were to commence habitually to make redundancy payments that would not mean that after a while those payments would cease to be made from a desire to relieve distress and to provide relief from the unfortunate consequences of becoming unemployed. Payments habitually made to provide assistance to a house buyer do not cease to be so made because they are made habitually. If a payment is habitually made for renouncing a right under a contract or for abrogating a contract but does not become so notorious a part of the deal between employer and employee as to be a contractual term, the habitual nature of the payment does not affect a conclusion that the payment comes from the renunciation or the abrogation. Thus if an employer habitually makes payments in lieu of notice or payments otherwise for the abrogation of a contract, that fact does not on its own change the nature or source of a particular payment.

173.	I conclude that payments made to employees such as Avril Ferrari did not derive from and were not from their employment.
Conclusion
174.	This is a decision in principle on the issues arising in this appeal. The specific decisions are set out in paragraphs 164, 165, and 174 above. The hearing of this appeal is now adjourned in pursuance of rule 18(5) of  the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 until such further questions as arise from this decision have been agreed between the parties or either party applies for such issues to be decided at a reconvened hearing.

175.	I was asked in a Statement of Facts and Issues provided by the Appellant to make findings under six headings. I have attempted to do so below by reference to the decisions reached above. Those summaries are not however intended to be in place of, or in addition to, those decisions:

1.	“Are the terms of agreements between the Appellant and recognised trade unions recorded in national/local agreements incorporated into the contracts of employment of individual employees? In particular, were the Agreements so incorporated?”

I have found that certain provisions of the agreements were incorporated into the contracts of employees other than office staff - see Sections 1 and 2 above.

2.	“On the assumption that the Agreements were so incorporated, do payments pursuant to their terms give rise to a contractual entitlement of individual employees to a payment in lieu of notice (“PILON”) or part thereof on being made redundant?”

I have found that the clauses do not give the employer a right to dismiss on short notice, but that if an employee agreed to short notice the clauses provided the means of calculation of an entitlement to payment as a result. I distinguished between Existing Employees where the latter part of this conclusion was stronger and New Employees where it was less certain.

3.	“On the assumption that there is a contractual entitlement under the Agreements to a PILON, is such payment chargeable to tax under section 19 ICTA?”

I have found that (where they are incorporated) the effect of the incorporation of clauses of the agreements into the contract is that if the employee agrees to short notice the resulting payment is derived from his so agreeing to give up his notice rights rather than the abrogation of the employment contract, and that as a result it is taxable under section 19; whether or not the payment is also pursuant to an entitlement under the Agreement is relevant to that conclusion only because, and to the extent that, the contract of employment is not terminated by the agreement to short notice.

If contrary, to my view, the clauses give the employer the right to terminate on short notice then, subject to the Mairs point discussed at paragraphs 156ff above, the position would be on all fours with EMI v Coldicott, and the payment would be taxable.

4.	“On the assumption that the Agreements are not so incorporated or on the assumption that any such incorporation does not give rise to a contractual entitlement to a PILON, does such [legal] contractual entitlement nevertheless arise as a matter of custom and practice?” 

I have set out my conclusions on this issue in Section 1(iii) above.

5.	“On the assumption that there is a contractual entitlement to a PILON arising as a matter of custom and practice, is such payment chargeable to tax under section 19 ICTA?”

If such an entitlement is a legal entitlement my decision is the same as that in relation to question 3 above.

6.	On the assumption that there is no contractual entitlement to a PILON, are the payments made to individuals which are the subject of this appeal, nonetheless chargeable to tax under section 19 ICTA as being emoluments from employment?

To the extent that this question relates to employees in whose contracts the Memorandum of Agreement clauses are not incorporated, my decision is set out under heading 4(c) above.

CHARLES HELLIER
SPECIAL COMMISSIONER

RELEASED: 23 May 2006

SC 3063/2005
SC 3291/2005