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HMRC internal manual

Employment Status Manual

Case law: Todd & Others v Adams & Another

(18 April 2002 unreported)

Point at issueThe appellants claimed damages under the Fatal Accidents Act 1976 and the Law Reform Act (Miscellaneous Provisions) 1934 from the vessel owners, the respondents. There were two preliminary issues under consideration but only the second issue need be considered here. Under S.185 of the Merchant Shipping Act 1985, liability for maritime claims can be limited in certain circumstances but not where the servants of the ship owners are engaged under contracts of service.

The relevant point at issue was therefore whether members of the crew of a trawler were engaged under contracts of service.

FactsThe beam trawler “Margaretha Maria” capsized and sank with the loss of all hands in November 1997.

The judge in the High Court found that the crew of the vessel were all share fishermen and that there was nothing to suggest that the basis on which they were engaged on the vessel differed from the arrangements under which share fishermen generally work. The agreed facts included the following:

  • The skipper selected the crew members although none was obliged to go on any particular voyage.
  • There were no written contracts of engagement.
  • None of the crew received any wage or salary.
  • The financial arrangements were such that the catch was sold at auction by the agents and the gross proceeds were divided as to 5% to the vessel owners, 4% to the agents as commission, 2% to Newlyn Harbour for landing charges and a variable sum went to meet the cost of ice, fuel and other similar expenses. The balance was divided so that the crew received 40% and the owners 60%. The agents did the calculations on “settling sheets”.
  • The skipper was responsible for the general day-to-day management of the vessel
  • The skipper made the decision when the vessel went to sea, who would crew her and for how long they would fish. There was however some dispute as to whether decisions about where to fish were made by the skipper in conjunction with the crew.
  • The crew would order food for trips and pass the invoices to the agents to pay. The agents would reimburse themselves from the crew’s share of the proceeds.
  • If the sale of the catch on one trip did not cover the costs of the trip then no shares would be paid out
  • The crew provided their own oilskins, gloves, knives and bedding.
  • The ship owners provided the vessel, fishing gear, safety equipment and consumables such as grease, paint, cleaning gear and the materials necessary for repairs to the fishing gear.
  • The vessel was painted once a year. The owners had the option of engaging contractors to do this work but usually offered it to the crew who would be paid an hourly rate for doing so.

DecisionIn the High Court the Judge found that there were factors pointing both ways but concluded that on balance they pointed towards employment under a contract of service.

That decision was overturned in the Court of Appeal. Mr Justice Neuberger concluded that the Judge had not taken into account factors he ought to have taken into account. Had he done so, he thought there was only one correct view, which was that the members of the crew were not engaged under contracts of service. In his judgment Lord Justice Mance agreed with the conclusions of Mr Justice Neuberger. He added that there were four factors which considerably outweighed any inference in favour of a contract of service:

  • the fact that each trip involved a separate contract and that the crew might incur a loss on one trip although the proceeds and expenses from the first trip might be carried forward to the next trip
  • the financial arrangements whereby the agents accounted direct to the vessel owners and the crew for their shares of the net settlings
  • the vessel owners were not aware of the shares agreed among the crew. It was for the crew to decide how their share was to be split between them
  • the clear evidence of mutual intention for self-employment - submission by individual crew members of accounts to the Inland Revenue etc.The contractual relationship was between independent co-adventurers, as opposed to a contract of service.

CommentaryThis decision confirms the importance of financial risk, particularly where this extends to the possibility of making a loss, as a factor in determining employment status. In relation to share fishermen, the case follows the decisions of the Scottish Courts in a number of cases where sharing in losses was a factor.

It also highlights the need to consider, in a borderline case, whether there is any evidence of mutual intention. The case indicates that the fact that an individual has submitted accounts to the HMRC will be taken as evidence of intention for self- employment in the absence of any evidence to the contrary.

One minor issue that features in the case is confirmation of the fact that provision of equipment fundamental to an arrangement is considered to be a factor pointing towards a contract of service. In his judgment, Mr Justice Neuberger says:

“Of course, the very fact that some features are inevitable because, for instance, the respondents owned the Vessel, can rightly be said to serve to emphasise why the fact that they owned the Vessel assists the argument that the crew were engaged under contracts of service.”In this particular case, as in Hall v Lorimer, that fact was outweighed by others in favour of self-employment.

This case confirms the long-standing view taken by HMRC in relation to the engagement of share fishermen where the facts are similar.