R (on the application Hudson Contract Services Ltd) v Secetary of State for Business, Innovation and Skills
| Jurisdiction | England & Wales |
| Judge | Mr Justice Kerr |
| Judgment Date | 18 April 2016 |
| Neutral Citation | [2016] EWHC 844 (Admin) |
| Docket Number | Case No: CO/2725/2015 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 18 April 2016 |
and
[2016] EWHC 844 (Admin)
Mr Justice Kerr
Case No: CO/2725/2015
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Judgment handed down at
Leeds Combined Court Centre
The Courthouse, 1 Oxford Row,
Leeds, West Yorkshire LS1 3BG
Jonathan Peacock QC and Michael Fordham QC (instructed by Norton Rose Fulbright) for the Claimant
Sam Grodzinski QC and Brendan McGurk (instructed by the Govrnment Legal Department) for the Defendant and (instructed by Fieldfisher LLP) for the Interested Party
Hearing dates: 1–2 March 2016
APPROVED JUDGMENT
The claimant ("Hudson") contends that certain delegated legislation requiring it to pay a statutory levy is unlawful and should be quashed. The defendant ("the Secretary of State") and the interested party ("the Board" or "the CITB") beg to differ. At first permission was refused on the papers, by Holroyde J on 5 August 2015. He regarded all four grounds as unarguable. Then Kenneth Parker J, after an oral hearing, granted permission to move, on grounds 1–3 but not ground 4. That was on 8 October 2015.
Hudson is a provider of services to employers in the construction and engineering construction industries. Those services relate to the selfemployed part of the workforce. Hudson receives a fixed fee from its employer clients in return for contracting with, and providing payroll services for, self-employed construction workers. Hudson takes the risk of them being considered employees, with attendant rights. It does not supply labour to its clients, as a conventional agency would, and does not retain a pool of workers.
The Secretary of State made the Industrial Training Levy (Construction Industry Training Board) Order 2015 ("the 2015 Order") on 10 March 2015. It entered into force the next day. It is the latest in a long series of levy orders going back to the 1960s, providing for levy payments to be made to the Board, which is the statutory body responsible for training the workforce in the construction industry. Under the 2015 Order, Hudson has to pay, or may have to pay, levy. It did not have to under previous levy orders. Hudson complains that the 2015 Order is ultra vires, unfair and unlawful because it violates classic public law principles.
Specifically, Hudson seeks to quash, or have declared invalid, article 7(2) which (read with article 7(3) and (4)), sets the formula for calculating the amount of levy due in the third of three "levy periods"; that period being 1 January to 31 March 2017. Hudson estimates that if the levy in respect of that period ("the levy", as I shall refer to it) stands, and if Hudson has to pay it, its gross profit will be reduced from about £8.8 million to zero in the relevant financial year; and it says it will be unable, for commercial reasons, to pass on the cost by charging its clients more.
In the first three grounds of challenge, Hudson contends that the levy is unlawful because it is ultra vires the enabling statute in three particular ways, applying familiar public law principles of fairness, consistency of treatment, the Padfield requirement to make decisions (including by delegated legislation) within the purposes set by the four corners of the enabling legislation, and rationality. The fourth ground, for which permission was refused, was a freestanding irrationality challenge founded on alleged disproportionate impact of the levy on Hudson.
The legislative history is turgid but unavoidable; I will omit as much of the detail as I can. It starts with the Industrial Training Act 1964 ("the 1964 Act"), which conferred power to create industrial training boards by order. The power was to be exercised "for the purpose of making better provision for the training of persons over compulsory school age … for employment in any activities of industry or commerce" (section 1(1)).
A board was to provide training courses for those employed in the industries concerned (section 2(1)), including courses for industries other than its own (section 2(3)). There was no mention of training the self-employed. A board was required to impose levies on employers in the industry "for the purpose of raising money towards meeting its expenses" (section 4(1)), in accordance with orders made by the Minister, whose power was exercisable by statutory instrument (sections 4 and 7). No particular formula was prescribed; the formula was left to the boards and the Minister. Exemptions were permitted (section 4(1)).
The first levy order I am concerned with was made in 1965: the Industrial Training Levy (Construction Board) Order 1965, approving proposals submitted by the CITB ("the 1965 Order"). It did not include reference to a self-employed part of the workforce. There was a small employer exemption. The levy was fixed by reference to each construction industry "establishment" (as defined) at 0.5 per cent of the "emoluments of the persons employed in that establishment" (article 4(2)). Emoluments were "emoluments assessable to income tax under Schedule E …."
In 1967, the levy was extended to cover self-employed arrangements: see the Industrial Training Levy (Construction Board) Order 1967 ("the 1967 Order"). The levy was one per cent of "emoluments" (defined as before) for employed workers and one per cent of "sums paid or deemed … to have been paid by the employer … to any person (not being an employer in the construction industry) under an agreement for the performance of labour …." (article 4(2)(a) and (b) respectively).
So, in the case of the self-employed, a payment by an employer only attracted a levy (of one per cent) if the recipient was a self-employed worker and not another employer. If an employer paid another employer for a job done by the second employer's self-employed workers paid by the second employer, the first employer did not pay levy but the second employer did.
An agreement for the performance of labour was defined, not very succinctly, as:
… any arrangement, not being a contract of service or of apprenticeship, made between an employer and any other person or persons whereby the services (including any incidental use of tools) of such person or persons, or of any person or persons in his or their employment, are rendered to the first mentioned employer in his trade or business.
A further order in 1970, the Industrial Training Levy (Construction Board) Order 1970 ("the 1970 Order"), changed the system to one of per capita payments. Employed workers were placed in categories and levy was raised at a fixed rate for each category of worker at a particular establishment. The range was from £8 to £41 for employed workers, and £25 for a person "employed under an agreement for the performance of labour", the definition of which remained (materially) the same.
The small employer exemption was defined by reference to "emoluments", defined as before (article 4(2)), in the case of employees, and by reference to sums paid under an agreement for the performance of labour in the case of the self-employed. Again, no levy was payable if the recipient of a payment was an employer and not an employee or self-employed worker (article 3).
The Employment and Training Act 1973 ("the 1973 Act"), made amendments to the 1964 Act. The definitions of "employee" and "employment" were changed so as to embrace the self-employed as well as the employed workforce. The former were included within the term "employee", which was defined in section 1(2) so as to include a person "engaged under a contract for services"; and "employment" included "employment under … a contract for services or otherwise than under a contract".
The power to impose a levy was now to be exercised for "the purpose of encouraging adequate training in the industry" (section 6(1) and (2) of the 1973 Act, read with Schedule 2, modifying section 4(1) of the 1964 Act). The "industry" was "the activities in relation to which it [the relevant industrial training board] exercises functions".
For the first time, a qualified cap on the total amount of levy to be raised was included (section 4(2A)(d) of the 1964 Act, as modified). The cap could not be exceeded unless the Minister considered that was appropriate in the circumstances. The cap was set at (disregarding exemptions) one per cent of the estimated "aggregate of the emoluments and payments intended to be disbursed as emoluments which are paid and payable, by that employer to or in respect of persons employed in the industry" during the relevant levy period.
In 1974 another levy order (the Industrial Training Levy (Construction Board) Order 1974 ("the 1974 Order")) was made, under the amended 1964 Act. The per capita system was continued, but this time levy was charged on an "averaged per capita" basis, by reference to the average number of workers of each type at a particular construction establishment. Levy was payable in respect of a payment to a self-employed person — but again, not in respect of a payment to an employer of such a person — employed under a "labour-only agreement".
That was defined in terms similar to the definition of an "agreement for the performance of labour" in the 1967 Order. The definition in the 1974 Order (paragraph 1(h) of the Schedule) was:
… any arrangement, not being a contract of service or of apprenticeship, made between an employer and any other person or persons whereby the services (including any incidental use of tools) of such person or persons, or of any other person or persons were rendered to the employer in his trade or business.
There was a small...
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