Case No: A1/2003/0379
Neutral citation no:  [2003] EWCA Civ 1676
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
HIS HONOUR J. ALTMAN
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday 20 November 2003

Before :

LORD JUSTICE PETER GIBSON
LORD JUSTICE WALLER
and 
LORD JUSTICE CARNWATH
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Between :

	COLEN & ANOR	Respondent	
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	CEBRIAN (UK) LIMITED	Appellant	

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Jennifer Eady (instructed by Knight & Sons solicitors) for the Respondent
James Laddie (instructed by Hacking Ashton solicitors) for the Appellant

Hearing dates : Tuesday 28th October 2003
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JUDGMENT 

Lord Justice Waller: 

Introduction
1.	This is an appeal brought with permission of Keene LJ from the decision of the Employment Appeal Tribunal (the EAT) dated 7th November 2002. The EAT reversed the decision of an Employment Tribunal (the ET) dated 17th July 2001.  The ET had decided that the contracts of employment of the respondents (the Colens) were tainted with illegality, and that accordingly the Colens had no remedy either to enforce an alleged entitlement to commission due prior to their dismissal and no remedy for unfair or wrongful dismissal. 
Background facts 
2.	In September 1995 the Colens (to whom where appropriate I shall refer individually as MC and AC) each brought a claim against the appellant company Cebrian (UK) Limited (Cebrian (UK)) for unfair dismissal, for damages for breach of contract, and for what are popularly known as “Wages Act” claims.  This followed a breakdown of the relationship between the shareholders in Cebrian (UK) who were as to 52% the Cebrian brothers, 24% the Colens and 24% the Percivals (Mr Percival being AC’s brother).  That breakdown resulted in the Colens being dismissed in June 1995.  The Colens also issued a petition in the High Court under Section 459 of the Companies Act 1985, and launched certain High Court proceedings with which the Section 459 proceedings were consolidated.  While the High Court/Section 459 proceedings were being resolved the ET proceedings were held in abeyance.
3.	In the High Court/Section 459 proceedings the history of the working relationship as between the Colens, the Percivals, the Cebrians, and Cebrian (UK), was explored in some detail.  The judgment of His Honour Judge Boggis QC delivered on 17th November 1999, sets out his findings of fact in that regard.  That judgment reflects that from the outset the arrangement between Cebrian (UK) and the Colens and the Percivals was that each family would have a responsibility for different parts of the United Kingdom, and that a low basic salary would be paid to each family but that each family would receive a commission of 10% on sales in that section of the country for which each was responsible.  AC and MC frankly state in statements before the ET, that when it came to actually making payments to the individual members of the families, payments were made in the manner most tax efficient to the individuals.  No suggestion was made before Judge Boggis that anything was being done illegally.  Judge Boggis traced certain changes in the commission arrangements.  Evidently for a period from 1984 to 1988 it was agreed that the Percivals and the Colens should receive 5% from all sales, not simply from the sales for which each family was responsible.  In 1988 however there was a reversion to 10% on the sales for which each was responsible.  There was no issue before Judge Boggis as to whether those changes and in particular the change in 1988 was intended to vary the agreement in any radical way.  Judge Boggis described this change in 1988 in the following way:
“In 1988 the commission system was changed again with Mr Colen and Mr Percival each taking 10% on their own sales.  The purpose was to increase their own motivation”
4.	The Colens were totally successful in their Section 459 proceedings.  Judge Boggis held that the Colens had been wrongfully dismissed, and ordered the Cebrians to buy the Colens’ shares for £150,000.  He also dealt with certain points the subject of a counterclaim by Cebrian (UK), one of which related to the calculation of commission. In that regard the judge said this:
“There has been very little evidence about the terms on which commission was chargeable by the Colens and the Percivals.  The best evidence I have been shown is a letter in Spanish dated 25 February 1982 which appears to set out Mr Percival’s terms in connection with Tellime.  It speaks of Commission on sales.
In my judgment, all of these elements of the Counterclaim fail.  I have heard evidence that post and packing did indeed include a profit element.  The medal cases were indeed sold to Cebrian SL which company made a good profit on them.  I accept Mr Craig’s submission that the commission was on sales not profit.  So far as I can tell, there was no provision for the commission to be payable only once the customer had paid for the goods.  It is true that Manolo and Paco Cebrian complained that the Percivals and the Colens were making too much money out of the company, but never was any complaint made about the way in which commission was calculated until long after both the Percivals and the Colens had left.  If the complaint were legitimate it would have been raised much earlier.  This part of the Counterclaim fails.”
5.	The judge’s use of language at that stage would tend to indicate that he did not contemplate that there had ever been any significant change in the arrangement that commission should be paid to the Colens and the Percivals as a family as opposed to Mr Colen and Mr Percival individually, but nor it is fair to say would he have been considering that issue.
6.	Following the conclusion of the Section 459 proceedings in November 1999, the proceedings before the ET were revived and Cebrian (UK) admitted liability. The proceedings were thus from 1999 concerned with remedies only. In June 2001 statements of MC and AC were served on those representing Cebrian (UK).  They spelt out in detail the way over the years from 1982 to 1984 a basic salary was paid and how the Colens, and the Percivals, as a family received 10% commission on the sales in their particular area. MC’s statement dealt with the changes thereafter in this way:
“The Cebrians had very little involvement in the business in the UK, despite being majority shareholders and left Ann and myself, together with Peter and Lynne, to run the business.  Our basic salaries increased, but we always retained a low basic salary, with commission of 10% being paid on all sales.  For a short while, between 1984 and 1988, we changed the system of commission so that each family earned 5% of commission throughout the country.  Prior to that, and again after October 1988, we each had 10% commission on the sales in our particular areas.  Sales in the southern area were usually about 60-65% of the total sales.  As always, our commission was paid to the family, i.e. Percivals and Colens.
7.	In paragraph 19 he said this:-
“At the time of my dismissal I was earning a basic salary of £12,600 per annum and Ann was earning a basic salary of £4,680.  As already explained we shared the commission in the most tax efficient way as advised to us and some parts of the commission were used to pay for private health insurance.  We also participated in a fine wine scheme whereby wine was purchased by the company on our behalf, and later sold.  I understand this avoided the payment of national insurance contributions.  I do not know all the details, but my understanding is that this was a perfectly legitimate scheme recommended by SDB Group and implemented by Dean Statham.”
8.	AC provided a statement consistent with that of her husband saying in paragraph 4:-
“Throughout the whole of my employment with Cebrian (UK) Limited, Manolo and I always shared income.  We both had low salaries from the start and at the very beginning we took a joint salary of about £5,000.00 together with commission.  We always arranged it so that commission was paid to both of us with it being divided in a tax efficient way.  We were both working, and we both had low salaries and it was reasonable for each of us to receive some commission.  My brother Peter Percival and his wife Lynne similarly shared commission in a way appropriate to them and this was the way payments were always made.  The Cebrians had no involvement in the way payments were made and, at least initially, were just happy that the company grew in its turnover and profitability.”
9.	We were informed by Mr Laddie who appeared before us for Cebrian (UK), that it was following receipt of those statements that one week before the ET hearing those representing Cebrian (UK) took the point in correspondence that an issue arose as to whether “this contract was (or presumably these contracts were) tainted with illegality”.
10.	When the matter came on before the ET, the ET identified seven points in issue, and the reduction of the seven points to two in the following terms:
“For the sake of completeness, those seven points which we had to decide were as follows:
(1)	the length of Mrs Colen’s service;
(2)	the method of calculating the commission;
(3)	what has been colloquially referred to as the “split” in respect of the commission, i.e. whether the commission was due to Mr Colen or Mrs Colen or both;
(4)	the length of notice to which each of the applicants were entitled;
(5)	one of illegality, and whether this contract was tainted with illegality as being a fraud on the Revenue;
(6)	holiday pay;
(7)	the compensatory award in the unfair dismissal case.

The parties agreed that we should initially decide items (3) and (5) which are inextricably intertwined; the decision on (5) depended on our factual findings in respect of (3).  We have to make findings of fact as to who was entitled to the commission before we can decide whether there is an illegality such as to deprive Mr and Mrs Colen of their rights.”
11.	Before the ET the evidence called by Cebrian (UK) was from an accountant who produced certain schedules (pages 83 and 84 in our bundle).  He also produced an auditor’s document page 86 and 87 in our bundle.  Otherwise no single document of the company was produced.  Mr Hector Cebrian was also called but, as Mr Laddie accepted, since he was a son of one of the Cebrians involved in the original setting up of Cebrian (UK), and only 9 years old in 1982, such direct evidence as he could give was limited and no finding of the ET appears to have been based on his evidence.
12.	The ET made the following findings of fact:
“Our findings of fact are substantially based upon the applicant’s own evidence and their own pleaded cases.  It is all very well parties expressing views in 2001, looking back to 1995, for example, but it is very easy for any party to forget or to put a gloss on matters later.  Accordingly, it is helpful for a Tribunal to look at some of the original documents to assist us.
	If one looks at page 3 of the bundle of documents, this is part of Mrs Colen’s originating application, drawn up on her behalf by solicitors.  That states, in paragraph 2:-
“The following were express terms of the contract of employment relating to remuneration and benefits:-
(b)	ad hoc share in the commission of 10% of total sales of the Respondent which was payable to the applicant’s husband.
	Equally, on page 7 of the documents, Mr Colen says, in his originating application:-
“The following were express terms of the contract of employment relating to remuneration and benefits:-
(b)	commission of 10% of total sales of the Respondents (to be shared on an ad hoc basis with the applicant’s wife.
	In paragraph 19 of Mr Colen’s written witness statement he says:-
“As already explained, we shared the commission in the most tax efficient way as advised to us.”
	In paragraph 4 of Mrs Colen’s written witness statement she states:-
“We always arranged it so that commission was paid to both of us with it being divided in a tax efficient way.
	The position was confirmed by Mr Colen in his verbal testimony to the Tribunal.  He stated that his duties were principally sales and buying.  He confirmed that initially in the first two years his wife came round with him on his sales calls because his English language abilities were not very good.  However, thereafter her main duties were administrative and clerical.  She did, in fact, deal with mail order and telephone sales arising therefrom.  For a period of approximately four years, after the birth of her daughter in 1984, Mrs Colen worked mainly at home and went into the office from time to time.  Mr Colen further gave evidence that the split of commission would be different from time to time dependent upon the advice that he was receiving.  He gave examples of perhaps a 7 to 3 split or a 6 to 4 split dependent upon how favourable it was at the particular time.
	Neither of the applicants could give any evidence whatsoever as to the exact amount to which Mrs Colen would be entitled.  Whereas, it was very clear indeed, that Mr Colen was entitled to 10% commission on his sales.
	Of considerable importance also was the judgment of the High Court, at page 47 in the bundle of documents, where the judge stated:-
“In 1988 the commission system was changed again with Mr Colen and Mr Percival each taking 10% on their own sales.
	Further, Mr Richard Bladen, chartered accountant, gave evidence and referred to contemporaneous documents, which referred to the commission due to Mr Colen, and made no mention of Mrs Colen.
	The Tribunal accepts that factually the company did actually pay commission to Mrs Colen over many years.”
13.	It then rehearsed the arguments of Mrs Hancock for the Colens and Mr Ashton for Cebrian (UK).  The submission accepted was that of Mr Ashton, which was to the effect that “Mrs Colen was not entitled at law or in contract to any commission at all.  Mr Colen had decided to divest some of his rightful income and give it to his wife in order to evade paying tax.”  In paragraphs 20, 21 and 22 the ET said:
“The burden of proof is upon the applicants to satisfy this Tribunal on the balance of probabilities that it is more likely than not that the applicant, Mrs Colen, was legally and contractually entitled to commission.  They have singularly failed to do that.  Indeed, we are satisfied, on the balance of probabilities, that it was more likely than not, that Mrs Colen was not legally or contractually entitled to commission as claimed.
The contemporaneous documents indicate to us the commission was due to Mr Colen.  The High Court judge so found in his decision.
We appreciate that citizens have the right to organise their tax affairs in the most tax efficient way possible.  However, we cannot envisage that a wage earner has the right to say to employers: “Please pay a proportion of my salary to someone else, who does not pay tax or who pays tax at a lower rate than I, in order that I should pay less tax to the Inland Revenue”.  That seems to us a classic case of tax evasion.  The Revenue would no doubt lose billions of pounds a year from such a device.  Where does such matters end?  Would it be right for a wage earner to direct the top slice of his income to his wife, his daughter, his cousin, his friends?  Clearly, not.”
14.	Their conclusion in paragraph 27 was:
	“The unanimous decision of this Tribunal is that these contracts of employment between the parties are tainted with illegality, as being a fraud on the Revenue, and accordingly, we must dismiss both cases.”
15.	The matter came before the EAT. By the skeleton argument put in on behalf of Cebrian (UK) by paragraph 4.5 it made what was an important concession:
“On any proper reading of the High Court judgment it is clear that the Appellants were jointly entitled to receive 10% commission, payable on all sales, until mid 1984.  From mid-1984 to 1988 the Colens and the Percivals were each entitled to receive 5% commission, payable on all sales.  However, post-1988 it was agreed that the Second Appellant (or for that matter Mrs Percival) would no longer be entitled to any form of commission; commission was payable solely to the First Respondent (and Mr Percival) on all sales made by him, the purpose of which arrangement was to increase his motivation.”
16.	In its decision the EAT noted the evidential support for the proposition that in 1982 “the contractual arrangements properly so defined gave Mrs Colen an entitlement to commission” [para 10]; it suggested that reliance by the ET on the sentence from Judge Boggis’ judgment relating to 1988 was misconceived [paragraphs 12 and 47].  It then examined the findings of fact of the ET, and it concluded in paragraphs 49 and 50 as follows:
“In those circumstances it seems to us that an examination of those facts would inevitably have driven a reasonable Tribunal to exactly the opposite conclusion to which this Tribunal was driven; which was that there was a clear contractual term for the entitlement that was argued for by the parties.  A distinction is to be drawn, it seems to us, between the method of calculating commission which was to be 10% on Mr Colen’s sales and the ultimate destination of such commission.
There is no difficulty, it seems to us, in an employee A being entitled to gross commission subject to a deduction in favour of employee B so as to leave him with only a net figure of commission.  That seems to us to be the only interpretation there can be placed upon the evidence that was before the Employment Tribunal.”
Issue for the Court of Appeal
17.	The question for this court is not primarily whether the EAT was correct in its decision but whether the decision of the ET was wrong (see Mensah v East Hertfordshire NHS Trust [1998] IRLR 531 CA).  It is primarily the ET’s decision which this court must examine, and it is thus that decision to which I turn.
ET’s Decision
18.	That decision as it seems to me is deeply flawed.  First and foremost, it does not in any way reflect what was conceded before the EAT and conceded before us that there was on any view a period during which AC did have a joint entitlement to commission with her husband.  The case before the EAT as reflected in the skeleton of Cebrian (UK) was as quoted above.  The case being made in the skeleton before us by Mr Laddie is on the same lines and he formally conceded that there was no challenge to the contention that AC with her husband had a joint arrangement up until 1988.  The question, which the ET should have addressed, was whether there was a change in that arrangement in 1988.  If they had addressed that point they would have had to address also whether the quote from Judge Boggis’ judgment who was not concerned with that issue, provided any basis for suggesting a change from a joint entitlement to an entitlement of MC alone, particularly in the light of the language used by him later in his judgment (see para 4 above).  The tribunal further suggested they were relying on contemporaneous documents, but on analysis the only contemporaneous documents were pages 83 and 87 of the bundle put before us.  Page 83 (a summary of the payroll records in respect of MC and AC for the 6 months ended 30th June 1995) is in fact consistent with joint entitlement albeit it can be said to reflect a rather higher split in favour of AC than MC had suggested in evidence.  Page 87 is an auditor’s note prepared in April 1995 and showing commission for the previous year under the headings “M. Colen” and “P. Percival” and is not inconsistent with AC’s evidence that on occasions the commission was described as Mr Percival’s or Mr Colen’s although it was a joint commission.
19.	It furthermore seems to me that to place the burden of proof where they did was fundamentally wrong where illegality is being alleged.  The burden was on Cebrian (UK) to show that they and the Colens and indeed the Percivals had either made a contract with the object of defrauding the revenue, or had performed it with that objective or in a way which did defraud the revenue. That would have involved proving that the Colens varied the arrangement in 1988 so as to exclude AC from any share in the commission, and that MC had then with Cebrian (UK) decided to continue to pay her in order to defraud the Revenue.  Why, one asks, should they have done such a thing if the prior arrangement worked perfectly well?
20.	In my view, despite attempting to direct themselves as to the different questions that arise i.e. what the contractual arrangements for commission were and then whether the contract was tainted with illegality the ET blurred the distinctions that have to be kept in mind in this difficult area.
21.	It is important to keep certain strands separate. It is of course fundamental that an analysis is done as to what the contract is which is sought to be enforced. It is also important to keep in mind what the enforcing party needs to establish in order to succeed. The different aspects of illegality are helpfully referred to in the judgment of Peter Gibson LJ in  Hall v Woolston Hall Leisure Ltd [2001] ICR 99 at 108 where he said in paragraphs 28 to 31 as follows:-
“There can be no doubt but that under English law a claim, whether in contract or in tort, may be defeated on the ground of illegality or, in the Latin phrase, ex turpi causa non oritur actio. The classic statement of the principle was by Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp 341, 343: 

"No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted." 

Although we are not directly concerned with a claim in contract, it is helpful to consider the applicability of the defence of illegality to a contractual claim before considering the more directly relevant position of a claim in tort. In contract the decision of the House of Lords in Tinsley v Milligan [1994] 1 AC 340 has reaffirmed that the claimant cannot found his claim on an unlawful act. But when the claimant is not seeking to enforce an unlawful contract but founds his case on collateral rights acquired under the contract the court is neither bound nor entitled to reject the claim unless the illegality of necessity forms part of the claimant's case: p 377 per Lord Browne-Wilkinson. 

In two types of case it is well established that illegality renders a contract unenforceable from the outset. One is where the contract is entered into with the intention of committing an illegal act; the other is where the contract is expressly or implicitly prohibited by statute: St John Shipping Corporation v Joseph Rank Limited [1957] 1 QB 267, 283 per Devlin J. 

In a third category of cases a party may be prevented from enforcing it. That is where a contract, lawful when made, is illegally performed and the party knowingly participated in that illegal performance. In Ashmore, Benson, Pease & Co v A V Dawson Ltd [1973] 1 WLR 828, 833 Lord Denning MR said: 

"Not only did [the plaintiff's transport manager] know of the illegality. He participated in it by sanctioning the loading of the vehicle with a load in excess of the regulations. That participation in the illegal performance of the contract debars [the plaintiff] from suing [the defendant] on it or suing [the defendant] for negligence." 

So too Scarman LJ, at p 836:

"But knowledge by itself is not ... enough. There must be knowledge plus participation ... For these reasons I think the performance was illegal ...".”

22.	He also in paragraphs 33 and 34 of the same judgment refers to two cases  dealing with contracts of employment:-
“In Coral Leisure Group Ltd v Barnet [1981] ICR 503, 508 the Employment Appeal Tribunal asked itself the question whether any taint of illegality affecting part of a contract necessarily rendered the whole contract unenforceable by a party who knew of the illegality. In the case of a contract not for an illegal purpose or prohibited by statute the appeal tribunal answered that question in the negative, holding that the fact that the employee in the course of his employment committed an unlawful act did not prevent him from asserting thereafter his contract of employment against his employer. 

In Newland v Simons & Willer (Hairdressers) Ltd [1981] ICR 521 the question was whether an employee could complain of unfair dismissal in circumstances where the tribunal had held that the employee knew or ought to have known that her employer had failed to pay tax and national insurance contributions in respect of her wages. The majority of the Employment Appeal Tribunal were of the view that, where both employer and employee knowingly commit an illegality by way of a fraud on the revenue in the payment and receipt of the employee’s remuneration under a contract of employment, the contract was turned into one prohibited by statute or common law and the employee was precluded from enforcing any employment rights which she might otherwise have against the employer. The majority thought the essential question to be: “Has the employee knowingly been a party to a deception on the revenue?”: see p 531. Further, May J said, at p 533: 

“We have no doubt that Parliament never intended to give the statutory rights provided for by the relevant employment legislation to those who were knowingly breaking the law by committing or participating in a fraud on the revenue.”” 

23.	The above passages demonstrate that an analysis needs to be done as to what the party’s intentions were from time to time. If the contract was unlawful at its formation or if there was an intention to perform the contract unlawfully as at the date of the contract, then the contract will be unenforceable. If at the date of the contract the contract was perfectly lawful and it was intended to perform it lawfully, the effect of some act of illegal performance is not automatically to render the contract unenforceable. If the contract is ultimately performed illegally and the party seeking to enforce takes part in the illegality, that may render the contract unenforceable at his instigation. But not every act of illegality in performance even participated in by the enforcer, will have that effect.  If the person seeking to enforce the contract has to rely on his illegal action in order to succeed then the court will not assist him. But if he does not have to do so, then in my view the question is whether the method of performance chosen and the degree of participation in that illegal performance is such as to “turn the contract into an illegal contract” (see the dictum of Jenkins LJ in B and B Viennese Fashions v Losane [1952] 1 All E R 909 at 913 cited by Scarman LJ in Ashmore Benson Ltd VA v Dawson Ltd [1973]1 WLR 828 at 836, and the language of para 34 in Hall quoted above). The decisions cited in the paragraphs 30 and 31 in Hall reflect, I suggest, the principle that not every illegality in performance will turn a contract into an illegal contract; on one side of the line appears to be Ashmore Benson Ltd v AV Dawson Ltd  and on the other  St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267. In the latter case the court was concerned with a breach of statute, and performance in breach of that statute. The question in relation to performance, it asked itself, was whether the statute intended to prohibit the type of contract sued on, and held on the construction of the relevant statute that it did not. In the former case the citation by Scarman LJ of the dictum of Jenkins LJ suggests that where illegality by virtue of the common law is concerned the question is whether the common law would say that a contract has by its illegal performance been turned into an illegal contract. Of course much may depend on the question whether the party seeking to enforce the contract needs to rely on the illegal performance in order to succeed.

24.	The appellants have put their case on the basis that any contract for the payment of commission was with MC alone. They then argue that the performance of the contract was illegal because the company actually paid part of the commission to AC with the intention of defrauding the Inland Revenue. They further assert that MC was a party to that fraud on the revenue. If the contract was with MC alone then there is clearly great force in the argument that the illegality of the performance with MC’s participation should lead to the result that the contract had become an illegal contract which MC should not now be entitled to enforce.  I am not sure I have to say how AC’s contractual rights other than her claim to commission would be affected.  But I need not dwell on that because in my view, in concluding that the contract so far as it related to commission was with MC alone, the ET misdirected itself. 
25.	I deduce that the ET was moved in part by the notion that because MC and AC were frankly saying that when it came to performance of the commission arrangement, payment was made in the way most advantageous so far as tax was concerned, that there would be something wrong or unlawful about taking such considerations into account. They failed to distinguish between [1] a contract made between the company and AC and MC under which commission was to be paid jointly with the sole motivation of defrauding the revenue because in reality the commission belonged to MC alone (undoubtedly an illegal contract); [2] a contract with MC alone but performed by payment to AC with the intention of defrauding the revenue (a contract rendered illegal by the performance and participation in the performance); [3] a contract under which both AC and MC were jointly entitled to commission for work done and participation in the business, but which may, when the question of actual payment came to be considered, have been paid with tax considerations in mind.
26.	In this last case, I would accept that if it could be demonstrated that on some occasion the split of the commission could not in any way be justified by reference to AC and MC’s participation in the business of the company, so that the revenue was being cheated of tax, then some illegality in the performance might have been demonstrated. But even then for Cebrian (UK) to be able to resist payment or resist a claim for damages, the onus would be on it to demonstrate that the transgressions were such as to turn by its illegal performance a valid contract into an illegal contract; or Cebrian(UK) would have to show (and again the onus would be on it) that AC and MC needed to rely on their illegality to succeed in their claim..
27.	But this is not the way in which Mr Laddie sought to argue the case before us and is not the way the matter was ever argued before the ET or the EAT. Furthermore if it had been so argued, by reference to such evidence as we have which reflects the evidence before the ET, [a] there is nothing to demonstrate that, although tax considerations were taken into account as MC and AC frankly admitted, the result was receipt by either of commission which did not reflect the husband and wife’s joint efforts in the business; [b] if the document at page 83 relied on by Mr Laddie, could be argued to reflect an occasion where AC did receive more than could be justified by reference to their joint efforts and her participation, that glimpse of a very short period of performance, is in no measure sufficient to turn a lawful contract into an illegal contract; and [c] there does not appear to be any question of either AC or MC having to rely on any illegal conduct in order to  succeed on their claim.
28.	AC and MC are asserting that commission is due. They do not need to rely on the way payments were made in the past. They are not entitled (contrary possibly to what may have been Miss Eady’s final submissions to us), to suggest that there was some contractual entitlement to have the commission paid solely by reference to tax considerations. Although the ET described as fatal to the Colen’s claims their inability to identify a particular amount or proportion of the commission to which each was entitled, commission, shared on an ad hoc arrangement, has never been argued to be so uncertain as to lead to no commission being due. It is a case where the ET must do its best to divide the commission relying on what is reasonable as between AC and MC remembering that not only were the two employees contributing to the profits made on sales in different ways, but were also shareholders with equal shares. 
29.	The ET in assessing the appropriate remedy will simply have to assess (1) 10% commission for the period up until the Colen’s dismissal, and award what would be a reasonable part of that sum to AC and a reasonable part to MC; (2) the ET will then have to assess what is the reasonable period of notice which AC or MC were entitled to, and make an assessment of what that would have meant in commission terms. Clearly while AC and MC would have continued in employment together that will involve a reasonable split between them taking account of their different contributions to the making of the profits for the period, if there be one, when MC would have been employed alone, the commission will go to MC.
30.	I would therefore dismiss the appeal and remit the matter to the ET to assess the entitlement of AC and MC in accordance with this judgment, varying the EAT’s order as suggested by Carnwath LJ.
Lord Justice Carnwath: 
31.	I agree. There are three issues:
a)	What was the contract?
b)	Did it involve illegality?
c)	If so, how does this affect the jurisdiction of the Employment Tribunal?
32.	On the first issue the Employment Tribunal decided that the contract was one under which Mr Colen alone was entitled to commission and that Mrs Colen had no legal or contractual entitlement to commission (para 12, 20-24).  This conclusion was unsustainable on the evidence before them.  The only oral evidence they heard was from Mr and Mrs Colen, both of whom gave evidence that the commission was shared between them, and was consideration for work done by them both, although the balance of work varied over the years.  
33.	The company called no relevant oral evidence on this point.  However the position as stated in its skeleton argument was that the entitlement to commission was indeed shared by the Colens until 1988 but that thereafter 
“it was agreed that (Mrs Colen)… would no longer be entitled to any form of commission.  Commission was payable solely to (Mr Colen)… and all sales made by him, the purpose of which arrangement was to increase his motivation”.  
34.	No evidence was called in support of this assertion other than reliance on what is said to be the “proper reading” of the High Court judgment, in which a sentence appears to the effect that the commission system was changed in 1988 as there asserted.  
35.	The Tribunal referred to that reference as being “of considerable importance” and as a “decision” to that effect (para 13, 21).  The only other material relied on by them was an indication in “contemporaneous documents”, which had been cited in evidence by Mr Bladen a chartered accountant.  However, Mr Bladen himself had no direct knowledge of the events in question. The only “contemporaneous document” relied on before us was an auditor’s working paper dated 31st December 1994, in which the entitlement to commission was noted as due to Mr Colen and Mr Percival, without any reference to their wives.  However, we have no knowledge of the basis on which the auditors were working.  In any event, that note is not inconsistent with Mr Colen’s own evidence (prepared before any question of illegality was raised), that 
“it was all four of us worked in the business, and it was never the case that it was my commission and Peter’s commission, although that was the way it was often referred to, but rather was just the basis on which we were all paid.” 
36.	In my view, the Tribunal were wrong to place any weight on one sentence in the High Court judgment.  The entitlement of Mrs Colen to any part of the commission was not at issue in the High Court proceedings.  Accordingly the statement on that point has no binding force.  Nor is it direct evidence in any way of the actual circumstances.  It would have no doubt been open to either party to produce evidence which had been before the High Court but that was not done.  Furthermore the Tribunal was  wrong to refer to “contemporaneous  documents” as supporting that view, when there was only one document whose provenance was not explained.  In my view, that was quite insufficient to displace the evidence of the Colens.  
37.	To summarise, it was the Tribunal’s duty to decide the case on the evidence before them.  The only direct evidence before them was that of the Colens.  That made clear that the entitlement to commission was a joint one.  That was entirely consistent with the company’s case  so far as the period before 1988 was concerned.  The suggestion that there was a significant change in 1988 was unsupported by any relevant evidence, and therefore should have been disregarded.  It follows that the EAT was right to allow the appeal on this ground.  
38.	The next question is whether there was any illegality involved.  As a matter of contract law, it is not suggested that there is anything unlawful in a contract being made with a husband and wife to work as a team for an employer in return for a joint commission.  Such a contract is discharged by the employer paying the commission to the husband and wife jointly, and he is not concerned with how they divide it between them.  On the evidence that essentially was the nature of this contract.  The respective contributions of Mr and Mrs Colen varied over the period of their involvement, but that made no difference to their relationship with the company as a team, or to the commission payable to them as a team.
39.	The alleged illegality arises out of the requirements of tax law.  On the view the Employment Tribunal took of the facts there was a clear breach of that law.  On the assumption that the commission was due to Mr Colen exclusively, the Tribunal was right to say that he could not lawfully direct that a proportion of that income should be treated as due to someone else for tax purposes.  As they said that would be “a classic case of tax evasion”.(para 22).
40.	However, if the commission is seen as a joint entitlement then the position is somewhat different.  The Tribunal thought that it was fatal to the claim that  the applicants were not able to identify a particular amount to which either of the Colens was entitled.  If it is a joint entitlement that is irrelevant to the contractual obligation, although it may become relevant to the remedy which the Tribunal is able to give (a point to which I shall return).  So far as the tax position is concerned, there is a difficulty because under tax law the obligations of employer and employee in respect of tax on the emoluments of an employment are obligations related to individual employees.  They cannot be treated as joint obligations of husband and wife.  It was therefore necessary for tax purposes for the company to take a view of the respective proportions to be allocated to each employee when calculating the tax deductions.  
41.	The evidence of Mr Colen was frank and unequivocal that the commission was shared “in the most tax-efficient way as advised to us”.  That I take to be a statement that the division was guided solely by tax considerations and not by reference to the relative contributions of the husband and wife.  The Tribunal recorded his oral evidence to similar effect, with the result that it might be
 “perhaps a 7 to 3 split or a 6 to 4 split dependent upon how favourable it was at a particular time”. (para 11).  
42.	For my part, I would be reluctant to proceed on the basis that this is a lawful way of discharging the company’s obligations to the Revenue. (It is fair to note, however, that there is no indication that the Revenue have ever been concerned about any alleged infringements).   A division has to be made for tax purposes. Although we have not heard argument on the point, it seems to me that the division should, in principle, be made on some objective criterion.  The criterion may not be tied to the particular hours put in by either party over a particular period.  In a case such as the present, the contribution of husband and wife as a team to a long-term project may not fairly be measured in terms of hours.  If no other criterion is available then an equal division is likely to be the most appropriate.  However, I would find it difficult to accept that the division can be guided purely by tax considerations.  
43.	However, even if this is correct, it does not mean that the contract is wholly unenforceable.  This is not a case like Salvesen v Simons [1994] ICR 409, where part of the arrangement was a payment of a management fee to a partnership for which there was no proper legal basis.  Here the essential nature of the contract was perfectly lawful, and under it the husband and wife team was entitled to payment of commission.  
44.	I agree with Waller LJ’s analysis of the authorities. I have also been assisted by the consideration given to this subject by Law Commission in its consultation paper on Illegal Transactions: the Effect of Illegality on Contracts and Trusts (LCCP 154, para 229 to 231).  The proposition there stated was:
“Generally it seems that the commission of a legal wrong or acting otherwise contrary to public policy in the course of performing a contract does not at common law affect enforcement.”
45.	This was supported by reference to a review of the authorities, beginning with Wetherell v Jones (1832) 3B&AD 221, ending with Coral Leisure Group Ltd v Barnett [1981] ICR 503, 509 where Browne-Wilkinson J summarised the position:
“The fact that a party has in the course of performing a contract committed an unlawful or immoral act will not by itself prevent him from further enforcing that contract unless the contract as entered into with the purpose of doing that unlawful or immoral act or the contract itself (as opposed to the mode of his performance) is prohibited by law.”  
46.	In my view, therefore, the Employment Tribunal had jurisdiction to deal with the issues before it and should have done so.  
47.	There is, as the Tribunal recognised, a separate problem in fixing a remedy in damages.  The cases of Mr and Mrs Colen before the Tribunal were presented as two separate cases.  There was no suggestion that they could present a joint case.  Accordingly, in fixing any damages for breach of contract it was necessary to deal with them separately.  Furthermore their claims in respect of lost share of commission were different.  Mr Colen was arguing that a reasonable period of notice for an employee in his senior position would be 12 months, and that he was entitled to lost commission for that period (to be shared, in an unspecified way, with his wife).  Mrs Colen, on the other hand, limited her claim to a period of notice of 4 months and claimed loss of commission for that period.  Accordingly, if the Tribunal had found there to be an entitlement to damages for lost commission, it would have been necessary for them to assess the relative shares.  
48.	As I have already noted they regarded the lack of the Colens’ ability to point to a specific division as fatal to their claim.  They said:
“It cannot be right that the Tribunal should have a stab at it on the basis of what the applicant earned over the last 12 weeks of her employment.”
49.	They referred to the variations, referred to in Mr Colen’s own evidence, in the proportions from time to time.  The EAT did not grapple with this point.  It ordered that the matter be remitted to the Tribunal on the basis that the contracts of employment were not tainted by illegality and that they
“provided for a share of the commission in accordance with the terms of the contracts as set out in the originating applications.”  
50.	That reference to the originating applications provides little guidance, because they simply referred to the commission as being “shared on an ad hoc basis” between husband and wife.  
51.	Miss Eady sought to support that form of order, possibly qualified by reference to the applicant’s evidence which referred to a division being made in the most tax-efficient way.  She did not shrink from suggesting that the Tribunal’s task would be to hear accountancy evidence as to what the most tax-efficient distribution would be.  Given the doubts I have expressed about apportionment based purely on tax considerations, I would not regard that as an acceptable form of order.  Mr Laddie also pointed to the difficulties that could arise in relation to the statutory limit on damages which could be awarded.  
52.	As a matter of common sense, the simplest way to deal with this would be to treat the husband and wife as a team and therefore entitled to the commission jointly.  Unfortunately this is made more difficult by the different periods of notice which have been asserted.  In the absence of agreement, there is no alternative but to require the Tribunal to determine what share each party could reasonably have expected to receive.  If no other lawful basis of division is put forward, then it may be that the issue will have to be resolved by dividing the commission equally applying the principle that “equality is equity”.  However that seems to me a matter to be resolved by the Tribunal on the basis of such evidence as is called on this issue.  
53.	In conclusion, I would vary the EAT order, by deleting the reference to the terms set out in the originating applications, and substituting the following finding:
“That the contracts of employment were not tainted by illegality and provided for commission of 10% to be paid to Mr and Mrs Colen jointly.”
54.	Subject to this variation, I would dismiss the appeal.  
Peter Gibson L.J.: 
55.	For the reasons given by Waller L.J. I too have reached the conclusion that the decision of the ET is so flawed that it cannot stand.
56.	The ET, probably because it ignored the fact that prior to 1988 the Colens, like the Percivals, had a joint entitlement to commission from the company, does not appear to have appreciated what a strange finding it made in holding that from and after 1988 Mr. Colen (and not Mrs. Colen) had the contractual entitlement to commission.  Why should Mrs. Colen, who continued to work for the company and to support Mr. Colen’s sales efforts by her administrative work and to share commission with her husband, have given up any contractual entitlement to her commission when her salary continued to be small?  Why should Mr. Colen have wanted to be contractually entitled to all the commission when he continued to share it with Mrs. Colen?  Why should the company have wanted Mr. Colen alone to be contractually entitled?  Until early 1995, Judge Boggis Q.C. found, the Colens and the Percivals ran the business of the company, and all four of them were directors.
57.	Further, the ET’s acceptance of the assertion by the solicitor advocate for the company that “Mr. Colen had decided to divest some of his rightful income and give it to his wife in order to evade paying tax” is strange.  Why should Mr. Colen do that when his wife, as a working employee of the company, could lawfully be paid commission by the company, without it ever becoming “his rightful income”, as indeed had happened prior to 1988?  The ET presumably considered that the company joined with the Colens in pretending to the Revenue that Mrs. Colen was entitled to commission, when the commission belonged to Mr. Colen.  But again I am at a loss to understand why rationally they should engage in such pretence when Mrs. Colen could be given the lawful entitlement to share the commission with her husband, as was done before 1988.
58.	Even stranger, as it seems to me, is the consequence found by the ET that because it found that Mr. Colen evaded tax by giving some of his commission to his wife, her contract of employment, which, on the ET’s view contained no term entitling her to commission, was tainted with illegality so that she cannot even obtain a remedy for her contract having been wrongly terminated or for unfair dismissal.  That is bizarre.
59.	I cannot help but think that the ET has lost its way in what I accept is not an easy area of the law.  As Waller L.J. has pointed out, the ET has made no attempt to analyse the applicable principles laid down in the authorities in order to apply them to the facts of this case.  The ET has found unpalatable an agreement which allows joint commission to be shared, in effect as the recipients, acting on the advice of the company’s accountants, agree that it should be shared, when the chief factor in how it was shared was tax efficiency.  For my part I find it difficult to say that an employee entitled contractually to commission jointly with another employee in shares which they are free to agree contravenes some tax principle by so agreeing or by receiving a share so agreed.  Nor do I see it as amounting to tax evasion as a failure to account to the Revenue.  That would assume that one or other has a contractual entitlement to a greater share, the tax on which has not been accounted for to the Revenue.  However, we have heard no argument on this point, and I express no concluded view.
60.	I acknowledge the practical problem posed by such an arrangement in the case of an employee who has been unfairly and wrongly dismissed and who has not received the remuneration due to him or her.  A joint award cannot be made.  The award of compensation to each must be left to the good sense of the ET.  I agree with what Waller L.J. says in paras. 28 and 29 of his judgment.
61.	For these reasons, as well as the reasons given by Waller L.J., I agree that this appeal should be dismissed, subject to the variation, which Carnwath L.J. has proposed, in the EAT’s order.