The King (on the application of Knot Builders Ltd) v Construction Industry Training Board
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Ellenbogen DBE |
| Judgment Date | 25 January 2024 |
| Neutral Citation | [2024] EWHC 115 (Admin) |
| Court | King's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/3384/2020; AC-2020-LON-002644 |
[2024] EWHC 115 (Admin)
Mrs Justice Ellenbogen
Case No: CO/3384/2020; AC-2020-LON-002644
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Ben Jaffey KC and Christopher Leigh (instructed by KPMG Law) for the Claimant
Christopher Knight (instructed by Fieldfisher) for the Defendant
Hearing dates: 28 February and 1 March, 2023
APPROVED JUDGMENT
This judgment was handed down remotely at 2pm on 25 January 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
The Claimant was formerly known as Hudson Contract Services Ltd. Until 25 March 2018, it provided services to employers operating in the construction and engineering industries in relation to the self-employed part of their workforce. By its contractual arrangements with its clients, it received a fixed fee in return for contracting with, and providing payroll services for, self-employed construction workers, known as ‘operatives’. In broad terms, the Claimant would bear the risk of such workers being considered employees, with attendant rights. It did not itself supply labour to its clients, nor did it retain a pool of workers. In Hudson Contract Services Limited v Construction Industry Training Board [2019] EWHC 45 (Admin), [5] to [8], its business model was described by Lambert J as follows:
5. Hudson is a company established in 1996. Its headquarters is in Bridlington, East Yorkshire although it has a small off-shoot office in Manchester. Its clients are small construction firms who have been engaged by a principal contractor to deliver a specific element of a construction project. Where a client requires the services of self-employed individuals (“operatives”), the client will identify the operatives required and contract with Hudson that Hudson shall (a) engage those operatives on a self-employed contract and (b) supply the services of those operatives to the clients. The client is required to use Hudson's method statement to explain to the operative that he is to be engaged on a self-employed basis with Hudson (with the option of employment if he wishes) and the operative will then sign a contract for services with Hudson at the client's premises. The contract for the provision of services (self-employed) between Hudson and the operative spells out that, following the negotiation of terms between the operative and the client, “ Hudson will step into the shoes of the Client and contract with the Freelance Operative on the terms negotiated” and that the operative “ has no contract of any type whatsoever with the Client.”
6. It is the client which checks the operative's qualifications and competence, arranges the necessary insurance, negotiates the rates of pay and which is responsible for health and safety issues. Copies of the paperwork are sent to Hudson. Hudson supplies a software package to the client for the purpose of entering details of pay and hours for payroll purposes. The client must ensure that cleared funds are in Hudson's account for payment of the operative. Hudson will then pay the operative, withholding the tax liability and provide a pay breakdown to the operative.
7. Hudson's own directly employed workforce (that is, those engaged under contracts of employment or materially equivalent contracts) is small, including only its directors and 2 members of staff together with a small team of regional auditors. The directly employed staff provide a wholly office-based function. As [Counsel for Hudson] put it, none of those directly employed by Hudson wield a pickaxe or do anything which is physical in the construction industry. Hudson is not contracted to deliver construction outputs or activities; it makes no profit that is dependent upon construction operations; Hudson itself maintains no pool or bank of operatives and does not select them; the directly employed workforce has no supervisory or management function in relation to construction work. Operatives are not despatched or directed or controlled from Hudson's head office and whilst members of the directly employed team may visit construction sites for audit purposes (to check that operatives who state they are self-employed, are self-employed), typically, operatives will never visit the office in Bridlington (or Manchester) and few will ever need to speak to the Hudson directly employed team.
8. The function served by Hudson's business model is two-fold. It has the effect of transferring to Hudson (a) the administrative burden of operating a payroll function and (b) responsibility for and dealing with compliance issues (including compliance with the terms of the Construction Industry Scheme) and thus shifting to Hudson the risk of Employment Tribunal proceedings and HMRC status enquiries and adverse findings. For each operative engaged by Hudson, Hudson is paid £15 per week. The Employment Tribunal recorded that Hudson was currently paying around 27,000 operatives per week and that, in the levy period under dispute, it paid around 20,702 operatives per week.
The Defendant is the statutory body responsible for training the workforce in the construction industry. Pursuant to certain legislation to which I shall come, provision was made for levy payments to be made to the Defendant by employers in the industry, for the hypothecated purpose of promoting and supporting training in that industry and for grants to be payable in specified circumstances. The Defendant paid grants to employers who were subject to the levy, which could be offset against their levy obligation. The history of the relevant legislation was set out in R (Hudson Contract Services Ltd) v Secretary of State for Business Innovation and Skills [2016] EWHC 844 (Admin) [3] to [46] and need not be repeated here.
Over a period of years, the Defendant did not assess the Claimant for levy. Any such assessment would have resulted in a nil, or negligible, liability, owing to the then applicable formula under which a company in the Claimant's position had been entitled to deduct all sums received from its own clients, which, in the Claimant's case, exceeded those which it paid to self-employed contractors. Following a change to the formula (the subject of an unsuccessful challenge by the Claimant, by way of judicial review — see above), those subject to the levy could no longer deduct sums which had been received from their clients. The Defendant registered and assessed the Claimant for levy for the periods 2015/16, 2016/17 and 2017/18, in the aggregate sum of £27,403,993. The Claimant's appeal against the first of those assessments failed ( [2020] ICR 1344). It is now common ground that the Claimant was not subject to levy for the subsequent periods because it had ceased operating in the industry from 25 March 2018, as a result of which the Defendant withdrew its levy claims for those periods. The remaining assessment is in the sum of £7,964,584, subject to set-off of any grant due to the Claimant. As to that, for each of the periods 2015/16, 2016/17 and 2017/18, the Claimant had applied for a grant, in the aggregate sum of £28,066,327.45, spanning six categories:
a. (i) the Claimant's own company inductions for new starters, plus (ii) health and safety site inductions undertaken by its clients;
b. short duration training against a training plan, for operatives working on client sites;
c. short course, ad hoc, informal, modular, and formal training, received by operatives in order to meet obligations under applicable health and safety legislation;
d. site audits by the Claimant, in the course of which operatives received workplace training on a number of issues;
e. “toolbox talks” (being presentations to operatives, each of which regarding a single aspect of health and safety), delivered to the Defendant's standards; and
f. a supplementary payment of 10%, ordinarily provided to grant claimants who had submitted their assessments and paid the levy on time.
By letter dated 26 June 2020, the Defendant made three decisions, the first two of which are challenged in these proceedings:
a. (‘Decision One’) The Claimant was not eligible for any grant for the grant year 2015/16;
b. (‘Decision Two’) For categories (a)(ii) (b), (c), (e), and (f) above, the Claimant was not eligible to receive grant in the periods 2016/17 or 2017/18; and
c. For the periods 2016/17 and 2017/18, the Claimant might be entitled to a grant for categories (a)(i) and (d) above, but further information would be required.
The Claimant contends that Decision One is unlawful because the Defendant fettered its discretion by adopting an over-rigid application of its grant policy, as set out in its 2015/16 terms and conditions — having failed properly to have considered a departure from the latter — and by acting in breach of a promise which had created a legitimate expectation that a grant would be payable. Decision Two is said to be unlawful (other than in respect of category a(ii)) because the Defendant applied requirements which did not appear in, and which it had taken a deliberate decision to omit from, the 2015/16 and 2016/17 grant terms and conditions. The Claimant contends that it would be conspicuously unfair, and contrary to its legitimate expectation, if the Defendant were to be permitted to resile from the terms of its published grant scheme, and that, in any event, it (the Claimant) had satisfied the requirements in fact applied. It is further contended that the Defendant's decision not to make a supplementary payment was irrational because analogous payments had been made routinely to others in a similar position. It is the Claimant's case that, if Decisions One...
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