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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Verity v Nation & Anor [2000] EWCA Civ 418 (24 November 2000) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/418.html Cite as: [2000] EWCA Civ 418

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice Prosser)

		Royal Courts of Justice Strand London WC2 Friday, 24th November 2000

1. LORD JUSTICE WARD: This is an appeal from the order of His Honour Judge Prosser, made on 25th June 1999, that there be judgment for the claimant, Mr Peter Verity, in the sum of £388,000 with costs. That claim was for unpaid salary, the claimant alleging that he was employed by the two defendants, Mr Robert Nation and Mr Karl Fender. Those defendants now appeal, with the leave of Lord Justice Schiemann.
2. Mr Verity is an architect and planning consultant. In the 1980s he was in Malaysia as a director of a Hong Kong based Australian company. He there met Mr Nation, a fellow director of that company, operating from Hong Kong. Mr Verity later returned to London, but the two continued to have occasional contact with each other. In 1992 Mr Verity visited Mr Nation in Bangkok and took note of a £1bn development of a new town for nearly three quarters of a million people in which Mr Nation and Mr Fender were engaged as architects.
3. Mr Nation and Mr Fender are in fact Australian architects living in Australia. They have practised together in Australia and the Far East through the medium of a number of companies. These companies are: Nation Fender Pty Limited in Melbourne; NFA Limited in Bangkok; Nation Fender Architects Limited in Hong Kong; and NFA Sarl in Paris. This Paris company was set up to work with the French contractors responsible for the new town development in Thailand. Mr Nation and Mr Fender were common directors and shareholders in these companies, but they were not in any formal way associated with each other. There was no holding company but, despite the absence of that company structure, the several companies referred to themselves as the NFA Group of Companies, trading as Nation Fender Architects or simply as NFA.
4. In 1993 Mr Verity, who was at that time a consultant with the Milton Keynes Corporation and living in London, was approached to tender for an office development for a large public company called Island and Peninsular in Kuala Lumpur, a project which was well beyond his individual resources. In March 1993 he invited Mr Nation to collaborate with him; and Mr Nation was happy to expand into a booming Malaysian market. The Bangkok office of NFA assumed full responsibility for the design of that new office development. Mr Verity explained his position in his witness statement as follows:

"From my position I could see the work potential in Malaysia but had neither the financial means nor the organisational resources with which to secure and undertake large scale commissions. I needed to be able to draw on or be part of a substantial existing professional group with the resources ability and experience to respond to opportunities at short notice. As Robert Nation and Karl Fender were already in Asia and I had begun to work with them it seemed the logical thing to join them on a permanent basis."

5. Mr Nation, for his part, was very anxious to expand into the Malaysian market because their own Thailand enterprise was heavily dependent on a single individual and they wanted more eggs in their basket. They saw Mr Verity's potential. It would seem that this much at least is common ground between the parties. But from this point onwards their account of their burgeoning relationship begins to draw apart.
6. It is convenient to start with the defendants' account of how matters developed. Mr Nation said that, following that successful March meeting, they met again in Kuala Lumpur in June 1993. He said in his witness statement:

"In fact we met in Kuala Lumpur in early to mid 1993 when we agreed that the Plaintiff would join the NFA Group of companies as a director, that he would be based in London and that his brief would be to develop the Malaysian side of the practice. In fact the Plaintiff had already started developing the project potential in Malaysia on behalf of NFA in about July 1993 and he was therefore permitted to back date his drawings to July once he joined us. The Plaintiff received a directors payment of £13,500 for July, August and September 1993 on 20th October 1993 due to his insistence that he had been representing the NFA Group as a director during this period and should receive the directors package accordingly. The monthly drawings at that time were equivalent to £4,500 per month."

7. That evidence was given to support the Defence, which alleged in essence that Mr Verity was a director of the NFA companies and remunerated in accordance with the current financial position of the companies. The Defence denied that there was any partnership between Mr Nation and Mr Fender or, for that matter, with anyone else.
8. Mr Nation gave a further explanation of the arrangements in his evidence. He said of Mr Verity:

"A.He joined our architectural practice. He was invited to join our architectural practice, which comprised a number of offices across a number of locations, as I have described, and the discussions which led up to him joining that practice commenced following the submission that we made to Island & Peninsular and continued across a number of meetings. Peter visited us also in Bangkok at the end of June/beginning of July - I do not have the exact dates - where we would have discussed the details of him joining the practice, as we would have through the August 17/18th period, whereupon in September at directors' meetings it was recorded that Mr Verity had agreed to join our practice as a director.

Q.What were the details agreed with him in terms of pay, where he was to work, what he was to do?

A.Peter was to join the practice as a director with all the same earnings and benefits as every other director, the same situation that Karl Fender and I and Richard Chew and Roland Kapalani and Joe Selby - and by this time Suni Yeung had departed, I think - Kumarde Jinterborn and Narrowmon Bangunacon also.

Q.Was the idea that he would work in a particular area?

A.At his request, he would be based in London and he would pursue work in his area of knowledge and expertise, and that being Malaysia. To us at the time it was very, very important, and we thought appropriate, that we did not have all our eggs in one basket, as it were, working as we were for this one client in Thailand. We thought that Peter could bring to the practice a range of skills, his planning skills, and his contacts that would allow our practice to grow beyond the Thai circumstance.

Q.Could you explain how he received monies?

A.Yes. All directors were paid from the Bangkok office initially by transfer from our Bangkok accounts to a Jersey account, which then distributed the money into individual accounts according to their own needs and requirements. Some of the directors received monies in their location and the sum of money, let us say the £4,500 gross drawings per month - some of the directors elected to take some monies locally in their location and other parts of that were distributed from the Jersey account into their private accounts."

9. Under cross-examination, he explained that the companies employed 60 or 70 people on the normal terms of an employment letter, an example of which had been placed before the court. Then he described the position of the "directors" in this way:

"A.The `directors' were a totally different group of people who received a different status, different roles, different benefits from those employees and all of them were committed to the growth of the practice through their efforts and endeavours and with the objective of finally setting up a holding company in which everybody would participate. That was our honest intent and commitment from all of those who were formal directors, and it was discussed openly and positively many times by each of these people, and that was the intent. So it was a group of directors in waiting, as it were, who worked together towards a common end."

10. Turning to the way the claimant put his case, his statement of claim alleged that:

"By an oral agreement made in London in or about June 1993 the Defendants employed the Plaintiff as an architect to work from an office in London on various projects being undertaken by the Defendants in Malaysia and elsewhere. It was a term of the agreement that the Plaintiff's salary would be agreed between the parties from time to time. From June 1994 the parties agreed on a salary of £7,000 per month, to be paid to him monthly in advance in London. In addition the Defendants agreed to reimburse the Plaintiff his expenses."

11. He went on to allege that the salary was reduced in November 1994 to £5,000. Later only £2,000 a month was being paid. He said that effectively he ceased to be paid in April 1995 but that, notwithstanding that, he continued to be employed; and he claimed still to be employed by the individual defendants and entitled to receive £7,000 a month.
12. He applied for summary judgment. In his affidavit in support he referred to the March meeting, which he said "served to rekindle the friendship between Robert Nation and myself". He continued in paragraph 7 of his affidavit:

"(iv)This led to a meeting with him [Robert Nation] and Karl Fender in London in about June 1993 at which time we discussed my joining Nation Fender to promote them particularly in Malaysia.

(v)My proposed employment with Robert Nation and Karl Fender was to be on the same terms and conditions as the `directors' on the basis that in the `near future' the practice was to be restructured with formal agreements being put in place. I was happy with this arrangement because of the trust which had developed between myself and Robert Nation during the early 1980s."

13. He went on to summarise his understanding of the arrangement. In paragraph 14 of his affidavit he said:

"(i)I was asked to join the Nation Fender Architects organisation because of the mutual benefits which would be involved. The agreement was concluded in London, my office was based in London and payments were made to London. ...

(vii)At the time I joined there was a suggestion that the Partnership would be restructured so that in future there would be an international holding company.

(viii)So far as I am aware those arrangements were never concluded and therefore I remained employed by the Partners themselves. ...

(x) My salary was fixed at £7,000.00 per annum in line with the other so called Directors until the Defendants unilaterally reduced the payments that they were intending to make."

14. In answer to that affidavit, the defendants' solicitor, with the information he had from his clients, denied that either had been in London at all in June 1993, as their passports would have confirmed.
15. In his witness statement the claimant shifted the date of the agreement from June to August. He said:

"10.On Tuesday, 3rd August 1993 I met in my London home with Robert Nation and Karl Fender. This was the first time I had met Karl Fender. The spirit of the discussions was on the development of new business and it was agreed that I would join them to promote and further opportunities in Malaysia. ...

12.Robert Nation and Karl Fender explained to me that there were several different companies in Thailand, Hong Kong, Australia and France of which they were the sole proprietors, but that they were in the process of restructuring their operations to include the establishment of an `off shore' holding company. In the near future, therefore, the agreements with individuals in their employ would be determined by and reflect the requirements of the proposed new structure. Proposals for this would be prepared in due course, by their lawyers and accountants.

13.It was agreed that I was to be employed by Robert Nation and Karl Fender on the same salary as the directors of their existing companies which I understood to be £4,550 pm with benefits ... in line with the directors of the existing companies."

16. When giving his evidence, he was adamant that the three of them had met in London on that day. By way of example, in his evidence given on 16th June 1999 he said:

"Q.You are quite certain Mr Fender was there, are you?

A.There is no doubt in my mind. ... What is vivid in my memory is that Karl Fender and Robert Nation arrived at my house from France and they arrived in mid-morning. As we know, if they had intended to have done business in France on 2nd August they might have experienced some difficulty because the first week in August is the weekend that the French move: they go to the countryside and it is difficult to get hold of people in Paris over that weekend. What I believe possibly happened is that they realised that whatever they were in Paris to do could not be done that day, so they changed their plans and came to London instead.

Q.On the Monday.

A.On the Monday. ...

Q.Would you tell us, please, the gist of what took place when they came to your home on that day?

A.The first thing I should note is that it was the first time that Robert Nation had been to my house in London and, secondly, it was the first time that I had met Karl Fender. I saw them from my dining room window, getting out of a taxi, coming towards the house, but uncertain actually because it is a slightly complicated, illogical numbering system at Falcon House. They had some difficulty in identifying which door they should enter. I was introduced to Karl Fender and was somewhat taken aback because virtually his opening remarks to me were, `We're not going to open a London office.' That struck me as strange, because the discussion, as I understood it, was not going to be about opening a London office, the discussion was going to be about pursuing architectural and planning opportunities in Malaysia and Singapore. They had arrived sometime after eleven. ... It was agreed that I would join the practice - join Nation and Fender on the same salary and benefits as the directors of the company. In my discussion of the potential projects, I mentioned in particular a man by the name of Hajida, who is a leading Malaysian architect with whom I had been in discussion. He was having problems in resourcing his own practice and he was looking to form a joint venture with another practice, a Western practice, that would be able to provide him with the resource to document projects. ... In a funny sort of way, it was bringing back the old relationship in part that had existed between me and Robert Nation and I thought that it was a point that was worthy of celebration and was somewhat taken aback when Karl Fender asked to use my phone, and it became apparent that they had another appointment to go to and so there was not the opportunity for the three of us to have lunch together."

17. One notes in that extract of the evidence the several references to the meeting having taken place in the morning.
18. The defendants denied that meeting. Mr Fender said in his evidence given on 18th June:

"Q.Can you help with where you were in the first week of August?

A.Yes, I left Bangkok on 1st August on flight TG 680, which goes to Vietnam, to Ho Chi Min City, and I spent a day or two there and I came back into Thailand on 3rd August."

19. He produced his passport to verify those movements.
20. Mr Nation said:

"Q.Did you or either of you, Mr Nation or Mr Fender, see in this period Mr Verity in his home?

A.I may have visited him for a few moments on the 3rd; I cannot recall, sir. If I did, it would have been a very fleeting visit because I arrived on 3rd August from Italy in transit to Bangkok, where I arrived on 4th August. Certainly under no circumstances did I visit him to arrange an employment contract."

21. Mr Nation produced various documents to support his account. He produced credit card statements showing his having been shopping in Eretzo in Italy on 3rd August. He said that he had flown from Italy, arriving in London at about 1.30pm. He then went shopping for architectural books in Bedford Square and for clothes at Armani near Harrods. There were some vouchers to support that. He said that he had to be back at Heathrow by about 8.00pm in time for the 10.15pm flight to Bangkok. Asked by his counsel whether he recalled meeting Mr Verity that day, his reply was:

"No, I cannot recall but, as I say, if I did it would have been early evening and I may have taken a glass of whisky with him, which is something that I did if I was visiting him."

22. It can be seen at once that this evidence produced some very sharp conflicts which the judge had to resolve. The claimant's case depended at least upon his account being believed, though that may not have been the end of his problems.
23. Before turning to the judgment, I must set out a few more salient features of the case. Mr Verity produced what was entitled a "Record of payment and shortfall from NFA". In a column headed "Amount expected" he showed plus or minus £5,500 for the months from July 1993 to May 1994 and he recorded payments of approximately £4,000 per month, with the consequent shortfall of £1,000 per month.
24. Those payments were, as a passage from the evidence I have already read indicated, paid from accounts in Jersey called the KRA or the RDA accounts. They were accounts in the names of the two defendants, who were the only signatories to those accounts, but they explained that the monies feeding those accounts came from the Bangkok company. There was not a great deal of discovery to support precisely how those monies moved, from which account they came and under what authority they were being dealt with.
25. In June 1994 it seems to be common ground that the payment structure changed. There is an NFA memo to "Directors" from "Executive". The subject is "Director's Entitlements". That memorandum recorded that:
26. "In an effort to rationalize and standardise and enhance (albeit in a small way) the director's package, this will now be adjusted to £7,000.00 per month, invoiced to the Bangkok office in pounds except by other routes as otherwise agreed individually. This amount is an all inclusive amount and includes salary, housing, telephone, water ..., electricity, maid and laundry."
27. That memorandum would have been sent to Mr Verity.
28. He was then paid £7,000 a month from June 1994 to October 1994, but the payments were then reduced to £5,000 per month and paid from November 1994 to March 1995, when effectively payments ceased. He was paid a further sum of about £15,000 in 1996 and perhaps other monies thereafter. The reason for this was that, as seems common ground, the market in the Far East had collapsed and all the hopes of "large golden eggs", as the judge described them, had been broken.
29. What needs to be explored is the way the claimant returned his income to the Inland Revenue. For the year ending April 1994, which is the first return after his relationship with the defendants began, he said in his tax return dated 16th August 1994 that he was a self-employed consultant architect. Not surprisingly, this led to a little bit of cross-examination. He was questioned about the return submitted on that date, which was after he had been, on his account, employed by Mr Nation and Mr Fender:

"Q.So why did you not put that in the tax return: that you had been employed by them?

A.As I explained, in filling out the tax form it was in my mind that this was, if you like, an interim state, that all the talks with Mr Nation and Mr Fender had been based on a new company being formed and the agreement had not been forthcoming. This was, if you like, a temporary interim situation."

30. There is, however, a second and, I have to say, unsatisfactory aspect about this return. He declared his earnings to be no more than £14,000. In fact, on his own account he had already received from Nation Fender £36,000 by way of eight months remuneration plus a bonus of £10,500. It seems to me to have been a blatant lie to the Inland Revenue.
31. For the next year, 1994/95, in his return submitted in April 1995 he described himself as being employed by "Nation Fender Architects" and he gave the address of the Hong Kong company. He said that he had earned £24,000 in that year. In fact, on his own figures he had received £64,000 - another extraordinary lie. He explained in his evidence given on 17th June 1999:
32. "A.By the time I came to fill this one out, obviously the salary payments were unlikely to be forthcoming for the ensuing year. Had I declared the full amount of earnings for this year, I would have been paying tax and yet the salary that I had earned was going to have to last me for a very long time, and a very long time it has had to last me."
33. The return for 1995/96 showed him declaring his income to have been £24,000 "yet to be received" from Nation Fender Architects, Hong Kong, when in fact, on his figures, he had received less than £8,000 in that year, although if he was still employed he would have received, or been entitled to, £84,000.
34. There is an odd feature about this return which also needs to be examined. He sent a fax to Mr Nation on 8th April 1996 and it is perhaps convenient to see how this document is set out. It is an NFA fax. It is from "Peter Verity" and the office is "London". Underneath that, there are five columns. One is for Bangkok, giving "NFA Limited" and its address and details. The second is for Hong Kong, giving "Nation Fender Architects Limited" and its address. The next is London, giving "NFA London" and its address at Falcon House (which is Mr Verity's Home). Then there is Melbourne, giving "Nation Fender Pty Ltd" and that company's address. Then there is Paris, giving "NFA SARL" and that company's address. So that is how they were in fact operating.
35. The fax itself said:

"Bob,

As discussed briefly in Singapore, I should be grateful if you could let me have a letter for the UK tax authorities. I attach a draft of a letter from NFA confirming that I have received no salary during the last tax year.

It is worth a try though I am advised that, as at the beginning of the tax year I agreed to the assessment and have made all statutory and voluntary contributions, the appeal is unlikely to succeed."

36. The letter he wished Mr Nation to sign was in these terms. It was headed "DRAFT, Letter from NFA". It was to be addressed to him and it was to read:

"Dear Mr Verity,

This is to record that during the year from 1 April 1995 to 31 March 1996 you have earned a salary of £5,000 per month.

Regrettably, difficulties Nation Fender Architects has experienced in the collection of professional fees has prevented us from making salary payments to you during this period. We hope that the outstanding amount of £60,000 owed for year to 31 March 1996 can be discharged as quickly as possible.

Yours sincerely,

R T Nation

Director."

37. I note that in the letter Mr Verity was himself drafting in relation to his employment it was not to be sent to him by Mr Nation and Mr Fender in some sort of partnership, but was to be sent by Mr Nation "Director", which seems to me to run very much at odds with his case.
38. In fact, it met with an expostulation from Mr Nation that there was no such arrangement whatever and there is a very cryptic comment endorsed on his copy of the same document. What he was prepared to send was a letter to Mr Verity saying that during the year in question:

"... it was the intention of the practice for directors to earn a salary of UK Pounds 5,000 per month.

Regrettably, and as you are aware, NFA has experienced major difficulties in the collection of professional fees in all offices which has prevented the payment of intended monthly drawings during this period."

39. That led to a fax from Mr Verity to Mr Nation of 22nd April:

"Dear Bob,

I am completely stunned by the letter you have sent regarding a statement of earnings for the UK Tax Authorities.

As far as the Tax Inspectors are concerned I am a salaried employee and income tax on the £60,000 for the 95/96 tax year is now overdue. ...

On a broader front I have not been present at any meeting where there has been a discussion of forgoing salary payments. This would not have been an option (and even less an option for a non-equity holder with no agreement)."

40. When one looks at the actual return for the year, it shows, as I have indicated, that he was saying that he was due £24,000, not the £60,000 for which he sought some confirmation.
41. Finally, I turn to the tax return for 1996/97. A point to note here is that that return is dated September 1997, which is two months after this claim was brought. When he made that return he reverted to returning his income as a self-employed person, calling his business "Peter Verity" and giving the description of his business as "consultant architect". In that return he said:

"During the whole of the period I continued to be employed by Nation Fender Architects Hong Kong exclusively. I am not financially able to make contributions to my pension but would like to make contributions for year 96/97 in a future year."

42. He declared his income to be £2,100 a month and he said:

"This is an amount of earnings, payment outstanding from Nation Fender Architects."

43. The Inland Revenue assessed him on that basis. On 18th February 1998 they set out the income tax calculation based on income of £25,200 as "income from Self-Employment (as a sole trader)". They asked him whether there was anything in that letter with which he did not agree. He made no reply. One sees, therefore, that once again the claim to the court and the return to the Inland Revenue are at odds with each other.
44. I now turn to the judgment. The judge correctly addressed the issues at the beginning of his judgment, saying:

"What if any was the relationship between the claimant and the defendants? Put another way, as between the defendants and their companies, what was the status of the claimant from about the middle of 1993? Was he an employee? If so, of whom and for how long? If not an employee, was he a director? If so, of which company? If not a director, was he a partner? If so, with whom? In each case, for how long was he a director or partner? Was he an independent contractor? If so, what are the terms of his contract? And again, for how long did that contract last, if there was one? Or was he something else?

They were all pertinent questions, though the only one he had to decide was in fact whether Mr Verity was an employee of Mr Nation and Mr Fender. He gave this correct answer:

"The fundamental answer to these crucial questions is a matter of fact for me after examining the evidence and evaluating it."

45. Not surprisingly, Mr McCue, who appears on Mr Verity's behalf here, as he did below, invites us to conclude that, since it was a matter of fact, we should be very, very slow indeed to interfere; and of course there is great force in that submission. The judge had the opportunity to see the witnesses, to assess their demeanour and to form conclusions about their evidence. He had advantages which we do not have. We should be chary to interfere unless it is the plainest of all plain cases that the judge was wrong. But I need not add to the length of this judgment by setting out the law to that effect.
46. The judge proceeded to analyse the essentials of a contract of employment and to set out what distinguished an employee from a self-employed person. He then said:

"The task of deciding the facts in this case has been made more difficult by virtue of the behaviour of all three principals. The claimant will have to do a great deal of explaining to the Inland Revenue over his tax returns since 1993."

47. The judge went on to deal with the evidence I have already recited. He observed that the explanations were to him "no explanation". He could not understand why he was using self-employed returns when he said he was employed. The judge concluded:

"Had this view of the claimant remained, I doubt if I could rely upon much else that he told me. However, when I heard the evidence of Mr Nation and Mr Fender, it became manifestly clear that their behaviour in relation to the claimant was, to say the least, bizarre. Thus, in my judgment, explaining some, and perhaps all, of the claimant's own odd behaviour."

48. I comment that, however complicated, loose, unstructured or plainly wrong the set-up of the defendants' enterprise was, I find it difficult to see how that has any bearing on the totally false returns of income made by this claimant.
49. However, continuing with the judgment, the judge analysed some of the bizarre features, as he described them, of the defendants' enterprise. He pointed out, correctly, that use of the word "director" was "largely a misnomer, although it conveniently described the status and responsibilities of the claimant and, indeed, of the other directors within each of the group of companies". He observed that the collaboration of these individuals made them "a very odd group of bedfellows". He referred to the plans for putting matters on a proper footing and the plans to create a proper holding company, to which I will have to return.
50. He observed that use of the word "corporate" was misleading as the group known as NFA "never was incorporated". He then said: "The claimant therefore was not a director of any of the defendants' companies, even though it is averred in the defence that he was. He was called a director of the holding company or group, but he was not a director of that because the group never was incorporated. It is not surprising, therefore, that the claimant was throughout the period of his association with the defendants confused about his position. The only common ground is that he and the defendants entered into a contract to work as architects together, particularly with Mr Nation. Mr Fender, it appears, seems to have concentrated most of his efforts in Australia."
51. That common ground of working together does of course beg the question what exactly the true relationship was. Later, the judge speaks of Mr Verity finishing his work at Milton Keynes in early 1993 and:

"... as he saw that Malaysia was now booming he gladly accepted the chance to work with Mr Nation and Mr Fender, particularly as they had a billion dollar new town development underway in Malaysia ..."[my emphasis]

52. I emphasise "with" to draw the distinction that the judge did not characterise it then as working "for" Mr Nation and Mr Fender, which he would have been doing were he an employee. The judge referred to payments of £4,500 a month and said that he was to receive "the equivalent of their drawings as directors as his salary".
53. He turned to the law and dealt again with the distinctions between employees and independent contractors. He said:

"As I have said already, the claimant in this case did work for the organisation for whom he worked and no-one else."

54. That again, in referring to "the organisation", begs the question the judge had to decide.
55. His conclusions were these:

"Returning to the beginning of the relationship, I believe there was a contract entered into between the claimant and Mr Nation in his flat in London in early August. Mr Nation is too busy a businessman and too shrewd to simply fly in a long way to London for some small items of shopping and a possible drink with Mr Verity. He knew how important the claimant could be in the organisation. Mr Fender, probably through Mr Nation, knew so too. I do not know if Mr Fender was there in London in August when the contract was agreed, but he knew about it, I am sure, and was party to it.

So what was the claimant when he was in association with Mr Nation and Mr Fender? He was not a director. That has always been very clear. He was not a partner. That has never been suggested, although the word `partners' has cropped up now and again in the documents. He was not an independent contractor, he had no staff of his own. He did not do work on his own account. If he had wished to, with all his contacts, he could have done so. In my judgment, he never turned away from his loyalty to two people, Mr Nation and Mr Fender. He did their work, his money came from the two individuals or through agencies controlled by them.

The claimant has not been dishonest with me in this court. He has behaved foolishly over his tax returns in particular, but that at least is understandable in the light of the comments and behaviour of the defendants, particularly Mr Nation."

56. So the judge found that he was an employee. He found that that employment was not terminated until three months after the defendants gave him notice that his position as a director was to end. The judge therefore calculated that he was due "his salary from August 1993 to February 1999 at £7,000 per month".
57. One could begin with the criticism that, in the light of the claimant's own evidence, his income of £7,000 a month did not begin until June 1994, but that does not deal with the real heart of this case, which is what exactly was the status of Mr Verity and, more particularly, was he an employee of the two individuals.
58. It seems to me that the judgment, with great respect to the judge (who had a difficult case to try, for there was much confusion in it and there was not always the documentation before him which would have enabled him to pick his way through the labyrinth) is open to these criticisms. In the first place, the judge observed that Mr Verity was not a partner and that partnership had never been suggested, although the word "partners" had cropped up. He found that he could not say whether Mr Fender was in London when the contract was made, but he felt he was a party to it. Mr Fender could not be bound by what took place with Mr Nation unless there was at least a partnership between the two men. Mr Verity could not be employed by two individuals, owing them duties of loyalty and service, unless they were in partnership and operating as a firm. But there is not the slightest evidence to suggest that Mr Nation and Mr Fender ever operated as such a firm. Every indication is that they operated through their various companies and that the business of the architectural practice was conducted through those various companies.
59. Secondly, there are the judge's findings on credibility. He had adversely criticised Mr Verity in connection with his tax affairs. He was, in my judgment, moderate in that. Mr Verity may well consider himself lucky that the papers were not sent direct to the Inland Revenue; and maybe they will be. But the judge does not appear to me sufficiently to have addressed the firm evidence given by Mr Verity of a meeting between the two gentlemen, Messrs Nation and Fender, on the morning of 3rd August. He gave a very elaborate description of that meeting. It was either right or it was wrong; and the emphatic way in which he gave it was, it seems to me, disproved by the clear evidence of Mr Fender's movements on that day. He was in the Far East. He could not possibly have been in London on 3rd August. It seems to me inherently improbable that Mr Verity could have believed the gentleman had come from France when Mr Nation's credit card statements confirm that he was shopping that morning in Italy and getting back on a plane to the Far East that evening. The judge, in saying that "Mr Nation is too busy a businessman and too shrewd to simply fly in a long way to London for some small items of shopping and a possible drink with Mr Verity", failed to understand what Mr Nation was saying. He was in London in transit. It seems to me that that reason for rejecting Mr Nation's evidence is surprising.
60. But it goes much further than that. I would not have been easily persuaded to interfere with the judgment based simply on the judge's assessment of credibility as to what happened on that occasion. What does persuade me that the judge was plainly wrong is the whole emphasis of the relations between the parties thereafter.
61. Let me begin, first, by looking at some of the explanations Mr Verity himself gave as to their early relationship. In his evidence he said:

"A.It was agreed that I would join the practice - join Nation and Fender on the same salary and benefits as the directors of the company."

62. Later, he said:

"A.... I agreed I would join them on the basis of parity with the existing directors. [Robert Nation] then told me that the directors earned a salary of about £4,500 [a month]. ...

Q.In effect, what you agreed to do was to become a director of a company that had yet to be incorporated.

A.Yes."

63. Secondly, I look at a letter written by Mr Verity on 16th June 1993, and so within a fortnight, on his account, of his becoming employed by Messrs Nation and Fender. In fact, he was there still writing on PDR notepaper, which was how his practice had been conducted. The letter was addressed to Mr Stephen Fox, who I think was part of a large international company, and it came from "Peter Verity, NFA - PDR Group London". He writes:

"I am sorry that I did not after all make it to Hong Kong from KL but hope to be there soon. I have therefore asked my Hong Kong partners Robert Nation and Sunny Yeung to contact you and introduce our practice."

64. He was cross-examined about that:

"Q.Why did you say it was a group?

A.Because what I wanted to do was give the impression, as far as Metal Box was concerned, that there was a working relationship between those two entities. The reason for that is that Stephen Fox, who is a very old friend of mine, was the head of Metal Box for China. I had spoken to him at length in this country about what Metal Box were going to be doing in China. ... So in writing to Stephen I am effectively introducing him to NFA, mentioning the principals there, Robert Nation and Suni Yeung, who was the Hong Kong based person, would be contacting them.

Q.You refer to them as principals, but `partners' is what is written down.

A.Partners, sorry. ...

Q.`As mentioned, the group is currently working in China.' Were you doing any work in China?

A.No, but that combination of NFA and PDR were. Effectively, NFA was and if you put a hyphen between the two then that group was. ...

Q.Mr Verity, you are there representing a relationship between your two businesses.

A.Yes.

Q.You are calling it a group.

A.Yes.

Q.Did you have in mind that you would like that arrangement to continue, working together?

A.It might well have been in the back of my mind, that in the longer term if these things proved to be the right way forward that it might at some stage turn into something else."

65. On 24th August 1993 he wrote another letter to a contact, Mr Goh Hup Chor, in Singapore. In this letter he said:

"Since we last met PDR has become part of the NFA Group who are working for the developers AP&D on a proposal for the redevelopment of the Burma Embassy site in Singapore. I hope you don't mind if I suggest to my partner Karl Fender that he contacts you for advice as to how best to tailor the proposal ..."

66. In cross-examination, he explained that he felt he would lose face if he described himself as an employee.
67. One looks next at the minutes of a "Director's Meeting Melbourne 30th September 1993". The various directors were present, with an apology from Mr Verity. The meeting apparently discussed the company structure and how it was to be reorganised by McKenna & Co, "a law firm based in Hong Kong". Advice was also being taken from their accountants. Then this is recorded:

"Peter Verity, someone known to RTN over a number of years, was joining NFA as a director. Peter has worked in the Far East since 1982 and has developed a network of key contacts. He has already secured for NFA what may become a major project in Malaysia. Unfortunately, Peter was not able to attend the meeting."

68. So far as I know, however, it was never disputed that he received the minutes of that meeting.
69. On 14th October he put forward his own proposals for his position and sent a draft letterhead for the approval of Mr Nation. There he proposed a letterheading which is interesting: "NFA, Architecture, Urban Design, Planning, Landscape, Interiors". He gave his own home address, Falcon House, but referred to the offices abroad in the various areas I have already mentioned. Down the left-hand column he listed directors. They included Mr Nation, Mr Fender and, not surprisingly, himself. I have already referred to the way the company organised its own letterheading when I read from the fax relating to the tax affairs.
70. Then there was the corporate structure, which was under active discussion between all of them. It set out the complicated relationships of the companies, where in some instances there had to be local directors. But undoubtedly the discussion was perceived to be about the "NFA Group, present corporate structure". It listed the seven men who were to be the shareholders of the holding company and described them as "individuals who are partners in the NFA group". They included Mr Verity.
71. Finally, for me the clinching fact in this relationship is contained in the minutes of the directors' meeting held on 23rd June 1994; so this is a year after Mr Verity says he began to be employed by Mr Nation and Mr Fender individually. He was present at that meeting. It makes it plain that he was participating in it; for example, suggesting that the company names should be standardised. It refers to his marketing NFA in London. It refers to the directors' responsibilities. It records that:

"Directors who are both joining and leaving the company should feel financially secure. Peter and Bob [that is to say, Mr Verity and Mr Nation] have experienced the brunt of loose agreements and they do not want to see this repeated. Everything regarding the company structure and director's agreements should be in place by Christmas."

72. When, therefore, one looks at the contemporaneous documents that were before the judge, there is absolutely nothing that gives any support whatever for Mr Verity's case that he was employed by what necessarily had to be a firm comprising at least Mr Nation and Mr Fender. Everything, on the contrary, points to a loose arrangement between them. It would be a lawyer's nightmare perhaps fully to untangle precisely what relationships were truly existing between them, but there is no doubt, on the documentary evidence, that, whatever the true legal position, Mr Verity was regarding himself as a "director" of a "group" which everybody recognised was then unstructured and needed to be put into a proper structure. He was holding himself up as, treating himself to be, and acting as, a director, just as much as the others, who were also not directors of individual companies, were holding themselves up. He was on a parity with them. Whatever he was, it seems to me abundantly plain that he was not the employee of Mr Nation and Mr Fender. That is what he had to establish and in my judgment, and with great respect to the learned judge, he could not have shown that there was that relationship between him and the defendants; not even that Mr Nation and Mr Fender were partners of a firm which was his employer.
73. I have sympathy for the judge and I do not interfere with his judgment, which was largely based on fact, without having combed through the transcripts and the documents to satisfy myself that at the end of the day there was no other result to arrive at other than that the claim had to fail. For that reason I would allow the appeal and dismiss the claimant's claim.
74. LORD JUSTICE JONATHAN PARKER: I agree.
75. The judge was undoubtedly faced with a difficult task in this case; and his difficulties were compounded by the fact that, notwithstanding that by their Defence the appellants expressly denied that they "conduct their business as a partnership or a quasi-partnership whether with each other or between the said companies", at the trial counsel then appearing for them submitted (as Mr Underwood has submitted in this court) that a partnership of some kind plainly existed.
76. As my Lord has said, it is only in rare cases that this court will interfere with findings of fact made by the trial judge. The reasons for this are too well-known to require repetition. On the other hand, where this court comes to the conclusion that, on the evidence before the trial judge, his findings of fact are plainly wrong, it is its duty to say so and to substitute the correct findings of fact.
77. In my judgment, this is such a case. The judge's finding that in August 1993 the appellants (or, it may be, Mr Nation acting on behalf of both of them, since the judge said in his judgment that he did not know whether Mr Fender was present at the meeting: see page 15 line 10 of the transcript of the judgment) orally agreed to employ the respondent runs contrary to the entirety of the evidence save only for the respondent's oral evidence that such a contract was concluded. So far as the documentary evidence is concerned, not only is there nothing in the contemporary documentation to support the existence of such a contract, but there are plain indications in that documentation that there was no such contract in place. In particular, I refer to the minutes of a meeting of the so-called "directors" held on 23rd June 1994, to which my Lord has referred and from which he has quoted.
78. In my judgment, this minute (the accuracy of which has not been challenged) is fatal to the respondent's case. It confirms the evidence of the appellants (which is wholly consistent with the remainder of the contemporary documentation) that at the material time all the "directors", including the respondent, were looking forward to the creation of some kind of corporate structure in which each of the "directors" would have a formal and identifiable role and status. Further, it is wholly inconsistent with the respondent having (or, for that matter, believing that he had) a subsisting contract of employment in June 1994.
79. There are, in addition, the most serious doubts as to the respondent's credibility, given the lies which he told the Revenue concerning his remuneration. Notwithstanding these lies, however, the judge accepted his oral evidence, being satisfied that (as he put it) "the claimant has not been dishonest with me in this court" (see page 15 line 25 of the transcript of the judgment). I make it clear that I do not rest my decision on this appeal on the respondent's dishonesty towards the Revenue, reprehensible though it is. I am satisfied that the judge should have rejected the respondent's oral evidence as to the existence of a contract of employment on the short ground that such evidence was not only uncorroborated by the remainder of the evidence, both documentary and oral, which was before the judge, but was flatly inconsistent with virtually all of it.
80. So, while I have (if I may be permitted to say so) every sympathy with the judge in the difficult task which he faced in this case, I am nevertheless satisfied that the judgment cannot stand, and that the claim must be dismissed.
Order: appeal allowed with costs here and below and claimant's claim dismissed; money lodged with court as security for costs plus accrued interest to be paid over to the defendants' solicitors.