Hudson Contract Services Ltd v The Construction Industry Training Board

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLady Justice Simler,Sir Jack Beatson,Lord Justice Underhill
Judgment Date10 Mar 2020
Neutral Citation[2020] EWCA Civ 328
Docket NumberCase No: A2/2019/0296

[2020] EWCA Civ 328

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM

THE HIGH COURT OF JUSTICE QUEEN'S BENCH

DIVISION (ADMINISTRATIVE COURT)

MRS JUSTICE LAMBERT

[2019] EWHC 45 (Admin)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Underhill

Lady Justice Simler

Sir Jack Beatson

Case No: A2/2019/0296

Between:
Hudson Contract Services Limited
Appellant
and
The Construction Industry Training Board
Respondent

Jolyon Maugham QC and Christopher Stone (instructed by KPMG LLP) for the Appellant

Sam Grodzinski QC and Christopher Knight (instructed by Fieldfisher LLP) for the Respondent

Hearing date: 15 January 2020

Approved Judgment

Lady Justice Simler

Introduction

1

This is a second appeal brought by Hudson Contract Services Limited (referred to as “Hudson”) against an assessment to levy by the Construction Industry Training Board (“the Board”) dated 7 March 2017, in the sum of £7,964,584 in respect of Hudson's head office at Bridlington. Hudson appeals the judgment of Lambert J dated 18 January 2019. The judge dismissed its appeal (brought under s.12(4) Industrial Training Act 1982) from the judgment of the Employment Tribunal (Employment Judge Sarah Goodman sitting with Ms Church and Mr Noblemunn) promulgated on 18 May 2018, upholding the levy.

2

Liability to levy by the Board is imposed by the Industrial Training Act 1982 (“the 1982 Act”) on an “employer in the construction industry” and is assessed in relation to each “construction establishment” of the employer “engaged wholly or mainly in the construction industry” during the relevant period.

3

In essentials, Hudson contends (both here and below) that it is not an employer in the construction industry because

i) neither it nor its direct employees carry out any of the “principal [construction industry] activities” listed in Schedule 1 of the Industrial Training (Construction Board) Order 1964 (as amended by SI 1992/3048) (“the Scope Order”); and

ii) it does not take any construction risk.

Further, since Hudson does not direct, control or supervise any construction activities from its head office in Bridlington, but instead carries out payroll (and related) services in relation to self-employed operatives who perform construction activities, this is not a construction establishment from which construction industry activities take place, to be assessed for the purposes of levy.

4

Those arguments were rejected below. In summary, both the Employment Tribunal and Lambert J held:

i) Hudson “employs” (in the extended sense given by the 1982 Act which includes self-employed workers) more than 20,000 self-employed operatives, the majority of whom work in the construction industry, carrying out a range of designated construction activities.

ii) Whether Hudson is “an employer in the construction industry” is answered by reference to the activities of those people whom the statute deems to be its employees. Accordingly, Hudson is an employer in the construction industry.

iii) Hudson has “a construction establishment” because the self-employed operatives work wholly or mainly in the construction industry and Hudson contracts with those employees from its head office, and they are paid from the head office. Accordingly, the construction industry activities take place from its head office at Bridlington.

5

The two central issues on this appeal, as they were below, are accordingly:

i) Whether Hudson is “an employer in the construction industry” for the purposes of s.11(2) of the 1982 Act and article 3(1) of the Industrial Training Levy (Construction Industry Training Board) Order 2015 (“the 2015 Order”), it being common ground that Hudson is “an employer” in the extended sense given by s.1(2) of the 1982 Act.

ii) Whether Hudson operates “a construction establishment” being an establishment “engaged wholly or mainly in the construction industry” for the purposes of article 5(2) of the 2015 Order; in other words, whether it is an establishment from which principal construction activities take place.

In addition, Hudson raises a further question as part of the construction establishment issue, concerning the proper meaning and application of article 5(4) of the 2015 Order.

6

Permission to appeal to this court was given by Bean LJ (by order dated 17 April 2019) on the basis that the case raises points of statutory interpretation not previously considered at this level.

7

For Hudson, Mr Jolyon Maugham QC appears with Mr Christopher Stone as they did below. For the Board Mr Sam Grodzinski QC appears with Mr Christopher Knight, who also appeared below. I am grateful to all counsel and those instructing them for the assistance they have provided by way of written and oral submissions in this case.

The background facts

8

The facts are not in dispute and can be summarised by reference to the findings of fact made by the Employment Tribunal.

9

Hudson was established in 1996, with a head office in Bridlington, East Yorkshire. It has no other relevant premises or potential establishments. At the time of the Employment Tribunal hearing it was paying 27,000 operatives each week (processing 1.4 million payments each year). Since the 2015 Order, Hudson has been registered by HMRC under the Construction Industry Scheme (the “CIS”) established by the Finance Act 2004, as a gross payment subcontractor. Until then its clients paid it on a net paid basis.

10

Hudson's clients are small specialist construction firms engaged by a principal contractor to deliver a specific element of a construction project. Where a client requires the services of workers for such projects, the client identifies the particular individual required and contracts with Hudson to engage him or her under its standard form self-employed contract and to supply the services of that individual to the client. As Hudson's standard client contract provides, the service to be provided by Hudson is that of acting as an engager of such Freelance Operatives as the Client may select, and the supply of their services to the Client (clause 2). The client agrees with Hudson that it has no right (and shall not purport to have any right) to exercise supervision, direction or control over the manner in which the freelance operative carries out the services (clause 8).

11

The client is required to use Hudson's “Method Statement” to explain to the operative that he or she is to be engaged on a self-employed basis with Hudson (with the option of actual employment if that is preferred) and the individual then signs a contract for services with Hudson at the client's premises (a copy of which is then filed at the Bridlington head office). The standard form contract for the provision of self-employed services between Hudson and the operative makes clear:

i) The operative is contracted to carry out services for the client “ operating in the construction sector” (clause 1).

ii) Following the negotiation of terms between the operative and the client, Hudson steps into the shoes of the client and contracts with the Freelance Operative on the terms negotiated (clause 2).

iii) The operative agrees that “ he has no contract of any type whatsoever with the Client” (clause 4) and “ is self-employed” and “ bound to Hudson to carry out the Service mutually agreed with the Client and to satisfy” each and every obligation which he has agreed with the Client he will satisfy (clause 7 (i) and (iii)).

iv) The operative must use his own tools and equipment necessary for providing his services; and may send a substitute (clause 7 (vii) and (ix)).

12

The client identifies the current site address and site representative in respect of the operative. The operative's qualifications and competence are checked by the client who is also responsible for arranging necessary insurance, negotiating rates of pay and for health and safety issues.

13

Hudson provides a software package to the client for the purposes of entering details of pay and hours for payroll purposes. The client is required to ensure that cleared funds are in Hudson's account for payment purposes. Hudson pays each operative, withholding the CIS tax element, and providing a pay breakdown to the operative, charging the client £15 per operative per week that the operative is supplied by Hudson to the client. Thus, Hudson has the administrative burden of operating a payroll function and takes on responsibility for dealing with compliance issues, including compliance with the terms of the CIS. The result is that the risk of employment tribunal proceedings and HMRC status enquiries shifts to Hudson.

14

Hudson's own directly employed workforce (those engaged under contracts of employment or equivalent) is small, including only its directors, two members of staff and a small team of regional auditors. The directly employed staff have wholly office-based functions save for the regional auditors. None of them do anything physical in the construction industry, and they do not have any supervisory, control or management function for construction activities of any kind. Hudson does not maintain a pool or bank of operatives and does not select those operatives it employs. Operatives are not despatched, directed or controlled from Hudson's head office and whilst members of the directly employed staff team may visit construction sites for audit purposes (to check that operatives who state they are self-employed, are self-employed) operatives do not generally visit head office or speak with the directly employed team.

15

The construction industry levy is collected under a series of “levy orders” made following consultation, at three year intervals, and most recently by the 2015 Order. Like Lambert J, I take the levy history so far as relevant, from the agreed statement of facts before the Employment Tribunal.

16

From at least 1982 until the second period of the 2015 Order, the...

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