England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
MR JUSTICE DAVID RICHARDS
CASE No: 9527 OF 2011, [2015] EWHC 883 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/06/2016

Lord Justice Vos:

Introduction

1. The two issues in this appeal, at least as it originally appeared, could be simply stated. The first was whether there was an implied contract between two companies, one of which provided services to the other by acting as the employer of its staff. The second was whether, if such a contract existed (as the judge held it did), that contract included an obligation on the operating company, which actually used the services of the staff, to indemnify the service company in respect of its obligations under section 75 of the Pensions Act 1995 (the "1995 Act"). Again, the judge held that it did. The section 75 debt in question amounted to a sum in the order of £30 million, but about £7 million is actually in dispute between the parties to this appeal for reasons that I need not explain.
2. In these circumstances, the appellants, who are the administrators of MF Global UK Limited, the operating company ("UK"), appeal both determinations of Mr Justice David Richards (as he then was). The appeal is resisted by the service company, MF Global UK Services Limited, also in administration ("Services").
3. The essential problem in this case is that both UK and Services were wholly owned subsidiaries of MF Global Holdings Europe Limited ("Holdings"). Services employed the staff and paid their wages and, in broad terms, the other costs of their employment, whilst UK utilised the services of the staff. Services did not have any express contract with UK in relation to the secondment of the staff. There was, however, an express contract between Services and Holdings dated 28^th June 2007 (the "Services Agreement"). The Services Agreement purported to lay down the terms upon which Services would supply and be paid for staff to the "Service Recipients" within the MF Global group including UK. The following clauses of the Services Agreement are particularly relevant to the issues we have to decide:-

"3.1 [Services] shall with effect on and from the Staff Transfer Date remain the employer for each Secondee but [Holdings] shall procure that all Payroll Costs for all Secondees shall be met on behalf of [Services] by the Service Recipients to be apportioned on such basis as [Holdings] shall determine from time to time.

3.2 In this clause "Payroll Costs" shall mean the aggregate costs in relation to each of the Secondees in the period of any assignment under this [Services Agreement] of all salary, bonus, and contractual and discretionary cash and non-cash benefits including, but not limited to, medical insurance, pension contributions, employee insurance benefits, company cars or car allowance, statutory and contractual leave entitlements, staff restaurant costs, relocation allowances, payments made on termination of employment and any tax and national insurance contributions thereon and any third party and/or employer's liability insurance cover which [Services] or the relevant Man Financial operating company may reasonably or lawfully require in respect of the employment and/or use of the Secondees.

5.1 [Services] shall discharge and perform all obligations and discharge all liabilities which may be imposed on it by law or otherwise in its capacity as employer of each Secondee ..."

The concession by UK

4. The two straightforward issues that I have described became complicated, in circumstances I shall now describe, when, at the hearing before us, UK sought to withdraw a concession that it had made in the course of the hearing below. The concession in question was that, in reimbursing Services for the costs of its employees that were seconded to UK, UK was acting pursuant to a contractual obligation.
5. There was no live evidence called before the judge. Mr George Bompas QC, leading counsel for Services, the respondent at first instance and before us, opened the case before the judge because, put broadly, Services was relying on an implied contract with UK that it had the burden of proving. After Mr Bompas had concluded his opening submissions, which took most of the first day of the hearing, Mr Richard Hitchcock QC, then leading counsel for UK, addressed the court. It was in the course of those submissions that Mr Hitchcock conceded in exchanges with the judge, for the first time, that in reimbursing Services for the costs of its employees that were seconded to UK, UK must have been acting pursuant to a contractual obligation. It was argued by UK that the implied contract was between UK and Holdings and not between UK and Services. The judge then relied upon UK's concession in his judgment and in argument about whether permission to appeal should be granted. He said, in effect, that the question before him had only been with whom UK had made the implied contract, it being accepted that there had been an implied contract pursuant to which the monies relating to Services' employees had been paid.
6. When Mr Martin Pascoe QC, now leading counsel for UK, started opening his appeal, we queried the concession that had been repeated in his skeleton argument to the effect that UK had an implied contract with Holdings, entered into pursuant to Holdings' procuring obligation in clause 3.1 of the Services Agreement, by which UK was obliged to reimburse Services for the costs it incurred in relation to the seconded staff. The concession seemed inconsistent with Mr Pascoe's primary oral submission which was that it was impermissible to find an implied contract if it was not necessary to do so. It was not necessary where, as here, the parties might have acted just as they did in the absence of a contract. Mr Pascoe gave 4 possible reasons why UK might have paid Services as it did: (i) pursuant to an implied contract between UK and Holdings (as submitted to the judge), (ii) simply having been procured to do so by its parent, Holdings, (iii) in the knowledge that Holdings could direct it do so to satisfy its procuring obligation, or (iv) so as to ensure that the seconded employees continued to provide their services to UK.
7. Ultimately, Mr Pascoe sought permission from the court to amend UK's grounds of appeal to delete a sentence accepting that the "only person to which [UK] owed any contractual obligation was Holdings", and to make expressly the argument that I have just explained. Services resisted the application, and I shall come to deal with it in due course. It is important, however, to realise that, if UK is successful in withdrawing the concession, the issue before this court will be significantly broader than it ultimately turned out to be before the judge. The judge simply asked himself the question: "with whom did UK have an implied contract to pay Services for the expenses of the seconded staff?" If the concession can be withdrawn, the question becomes: "is it appropriate in all the circumstances to imply a contract between UK and Services, pursuant to which Services paid the expenses of the seconded staff?"
8. I shall now turn to explain the relevant aspects of the judge's judgment.

The judge's judgment

9. The judge's judgment is commendably clear and concise. He explained how section 75 operated to impose a debt payable by the employer to the trustees of a defined benefit pension scheme (like the MF Global UK Pension Fund that is in issue in this case – the "Scheme") in two broad categories of case. First, where the scheme is being wound up if the value of the assets of the scheme are less than the amount of the scheme's liabilities, and secondly where a "relevant event" occurs in relation to the employer. The second situation is relevant here, since Services' administration was a "relevant event". The difference between the two situations is the flexibility that the trustees enjoy in fixing the date for the assessment of the scheme's assets and liabilities. There is flexibility in the first situation, but not in the second, so that in this case, the section 75 debt was established as being the difference between the value of the assets and liabilities of the Scheme immediately before the administration.
10. The judge then explained the provisions of Part 3 of the Pensions Act 2004, which provides a mechanism for trustees to ensure that their scheme is adequately funded, by preparing a recovery plan, and allows the Pension Regulator to impose a schedule of contributions on the employer where agreement cannot be reached. He then explained the history of the MF Global group and the IPO that had taken place in July 2007 by which the worldwide brokerage business which became MF Global was separated from the Man Group. Services established the new defined benefit pension scheme (the Scheme) for 36 transferred staff. The trust deed was dated 6^th July 2007 and Services was the principal employer. Services went into administration on 30^th October 2011, so that was when the section 75 debt crystallised in the sum of £35,232,000. Ultimately, however, UK (which was itself in special administration) only paid £29 million to the trustees in full and final settlement of the section 75 debt, and these proceedings arose from the failure of UK and Services to agree a settlement of Services' claim for an indemnity in relation to the section 75 debt, despite having agreed to use reasonable endeavours to do so.
11. The judge then set out the relevant terms of the Service Agreement, and explained how the accounts of Services and UK showed that basic wages and salaries, share-based payments, social security costs, contributions to defined benefit and defined contribution pension schemes were paid by Services to UK on a regular basis by way of a re-charge on a pound for pound basis with no mark-up. In relation to the Scheme, there had been an actuarial valuation as at 31^st December 2007 which disclosed a funding deficit of £6.775 million in respect of which Services agreed to make staged payments in respect of past service benefits, all of which (up to Services' administration) were paid directly by UK to the Scheme's trustees.
12. Having identified the two issues he was deciding and recorded Mr Hitchcock's concession that UK did not make payments to Services and to the Scheme's trustees gratuitously, but did so pursuant to an implied contract with Holdings, the judge turned to deal with the evidence. I can summarise the evidence that he dealt with briefly for reasons that will shortly become apparent. Suffice it to say that none of the witnesses who made statements was cross-examined, and the judge relied mainly on the following matters:-

i) The fact that there was no evidence of Holdings either procuring compliance with clause 3.1 of the Services Agreement or determining the basis of any apportionment.

ii) The way in which the employment arrangements were described in UK's and Services' accounts for 2008, but not mentioned in Holdings' accounts.

iii) A memorandum dated February 2009 (the "Memorandum") providing reassurance to Services' auditors in relation to the Scheme's deficit of £1.779 million as at 30^th June 2007 recording that Services' directors took on that liability and would pay more contributions to the pension fund as needed as per calculations and "[t]hese increased contributions will be reimbursed by [UK]". The memo was copied to Stephen Cochrane ("Mr Cochrane"), then a director of UK and Services, Kemper Cagney ("Mr Cagney"), then a director of UK, and Steve Craig ("Mr Craig"), then European Financial Controller of the MF Global group.

iv) Some emails in mid-2009 concerning the pension recovery plan contributions recording that a £1 million charge would be "recognised as an expense in UK" and "the auditors only signed [the statutory accounts of Services] as a going concern last year, on the basis that these payments over time would bring [Services] back to a net asset status".

v) Minutes of meetings of the trustees of the Scheme between December 2007 and March 2011 concerning the strength of the employer's covenant and the possibility of obtaining a parent company guarantee to reduce the levy payable to the Pension Protection Fund. In addition, the judge relied on email correspondence in which Mr Cagney thought there was no choice but to fund an additional £900,000 in proposed additional funding once the committed deficit reduction payments ended in 2012, but wanted to know about the accounting implications for UK.

vi) In September 2011, UK provided to the Financial Services Authority an Internal Adequacy Assessment Process report referring to UK considering it reasonable to set aside US$7.7 million of internal capital "versus the risk of deficiencies in the [Scheme]".

vii) Mr Cochrane's witness statement saying that the directors of UK viewed the entire operations of the MF Global group in the United Kingdom as one business even though it was made up of a number of different companies. Decisions were made by the directors of UK and, if necessary, approved by any other relevant group company. Services' activities in supplying seconded staff to other group companies did not require regular decision-making by its directors, and decisions relating to the Scheme were made by the directors of UK. It was always Mr Cochrane's intention and understanding as a director of UK and Services (until 28^th April and 12^th June 2009 respectively) "that UK would reimburse Services for any and all of the costs and funding requirements in respect of the [Scheme] as it was not possible for Services to fund the [Scheme] without support from UK".

13. The judge began his consideration of the issues by citing two well-known dicta. The first stated that no contract should be implied on the facts of any given case unless it is necessary to do so in order to give business reality to a transaction and to create enforceable obligations in circumstances in which one would expect such enforceable obligations to exist (May LJ at page 115 in The Elli 2 [1985] Lloyd's LR 107). The second expressed 3 propositions: (a) that contracts are not to be lightly implied, (b) that the court must be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for, and (c) that in most cases the court must be able to answer the question "what was the mechanism for offer and acceptance?" (Bingham LJ at page 1202 in Blackpool and Fylde Aero Club Ltd v. Blackpool Borough Council [1990] 1 WLR 1195).
14. The judge then referred again to UK's concession that, in paying Services for the costs of the seconded staff, it was fulfilling contractual obligations, so that it must have intended to enter into legal relations, and the only question was "with whom?" In answering this question, the judge relied on the absence of any evidence that Holdings had been involved at all after the Services Agreement was concluded. It was on the evidence "overwhelmingly likely" that UK and Services intended to enter into legal relations with each other. There was no need for Holdings to be involved, and by contracting with UK, Services could comply with its clause 3.1 obligation under the Services Agreement. The offer and acceptance analysis was that Services offered to second staff to UK on terms that UK would be responsible for the costs associated with the seconded staff.
15. As regards the second question, the judge thought that the main question was whether a section 75 debt constituted a cost in relation to the pensions of seconded staff, and said that it was plain that it did. This was the correct construction of clause 3.1 even without recourse to a number of background features he had referred to, but those features strengthened the conclusion. The background features included the fact that Services would be reimbursed by UK without any mark-up, so that Services had no assets of its own, but operated with a small deficit, leaving it unable to meet any section 75 debt. There was, however, no reason to assume that the structure had been established in order to leave Services with obligations it could not meet. A section 75 debt can arise on insolvency as in this case, but also if the pension scheme is wound up at a time of the trustees' choosing. The fact that a section 75 debt was not described in the legislation as a "contribution" was an overly fine distinction, because the legislation envisages the trustees and the principal employer negotiating a schedule of contributions to repair a deficit without the need for the last resort of the imposition of a section 75 debt. Anyway, the focus should not be solely on the use of the term "pension contribution" in clause 3.2 of the Services Agreement. That term was used in a list of examples of "payroll costs" including "the aggregate costs in relation to each of the Secondees in the period of any assignment under this [Services Agreement] of all salary, bonus, and contractual and discretionary cash and non-cash benefits", which naturally included pensions as a form of deferred remuneration.
16. In these circumstances, the judge found it unnecessary to consider whether, if clause 3 of the Services Agreement did not extend to a section 75 debt, the implied contract between Services and UK nonetheless did so.

The parties' main arguments

17. In addition to the arguments already highlighted in UK's draft amended grounds of appeal, Mr Pascoe QC relied on two additional authorities as to implied contracts. The first is Baird Textiles Holdings Ltd v. Marks & Spencer plc [2002] 1 All ER (Comm) 737, where Mance LJ said at paragraphs 59 and 61 that there had to be both (a) an agreement on essentials with sufficient certainty to be enforceable, and (b) an intention to create legal relations. The latter was only presumed when the first requirement was satisfied. Where an implied contract fell to be inferred from parties' conduct, the party asserting it had to show the necessity for implying it. Where the parties would or might have acted as they did without any such contract, there was no necessity to imply any contract. No intention to make such a contract will then be inferred. The second is The Aramis [1989] 1 Lloyd's Rep 213, where Bingham LJ said at paragraph 224 (after his dictum in The Elli 2 on which the judge had relied) that it would be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon was no more consistent with an intention to contract than with an intention not to contract. It was necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties: "I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract".
18. UK's primary submission was that, under the Services Agreement, Holdings had a contractual obligation to Services to procure that UK, as a secondee company under its control, would meet the "Payroll Costs" incurred by Services. In the circumstances, the fact that UK did so did not support the implication of a contract between Services and UK; it is equally consistent with UK's intention to fulfil obligations to its parent, Holdings. None of the evidence relied upon by the judge was referable only to the existence of the implied contract he found to have existed between Services and UK. The question that the judge failed to ask was whether or not the conduct of Services and UK was consistent only with the implied contract contended for. The absence of any evidence that Holdings had taken any active steps to procure action by UK was not surprising in the context of a group regarded by the directors as one indivisible business. The judge ought to have paid much greater regard to the actual terms of the Services Agreement that they had taken the trouble to put in place. The statements in the companies' accounts and in the witness statements were as consistent with the recharges being made in accordance with Holdings' procuring obligation as with an implied contract. UK submitted that it was not open to the judge on the available evidence to infer a contract between Services and UK.
19. In oral argument, Mr Pascoe concentrated on the fact that the Services Agreement had in fact been drafted by Clifford Chance, and that it would be very strange if that firm had not advised the MF Global companies to put in place a direct contract between UK and Services alongside the Services Agreement if one was thought necessary or appropriate. It followed from that background that no contract should be implied when major corporations, advised by experienced city solicitors, had considered the situation and decided (at least inferentially) that no such contract was required.
20. On the second issue, UK submitted that the section 75 debt did not, on the proper construction of clause 3 of the Services Agreement, fall within the definition of "Payroll Costs". The judge was wrong to think that it was included in the terms "all salary, bonus and contractual and discretionary cash and non-cash benefits". The Services Agreement was drafted and operated on a going concern basis, which reflected the business reality. Moreover, there was no need to imply a provision that UK would pay the section 75 debt, because, if the judge was right, Holdings had already agreed to procure its discharge. If the judge was wrong, it would be surprising if UK had undertaken a more extensive implied obligation than Holdings had undertaken expressly. The "moral hazard" provisions of the Pensions Act 2004 anyway provide a better public law protection than the implied contract could provide in private law.
21. Both sides' counsel took us through the documents on which the judge had relied and some which he had not mentioned in an attempt to show either, in Mr Pascoe's case, that they were entirely equivocal as to the existence of a contract between UK and Services, and in Mr Bompas' case that they were only consistent with UK thinking that it was obliged to pay Services in respect of all the recharged expenses of the seconded staff including the section 75 debt.
22. Both sides spent most time on UK's Statement of Affairs that was filed after its administration and verified by 3 of its erstwhile directors (Messrs Cagney, Moore and Pendred). The statement of affairs was submitted to UK's administrators by Memery Crystal, who were Services' solicitors (though not acting at the time in relation to the section 75 debt), but were acting also for the directors of UK personally. Memery Crystal wrote on 7^th March 2012 to the administrators of UK saying that their clients (the 3 UK directors) were satisfied as to the completeness and accuracy of the Statement of Affairs they had signed, subject to some immaterial caveats. The Statement of Affairs itself showed HMRC as a creditor of UK for payroll taxes of some £6.1 million, and the Scheme as a creditor for some £18.4 million. The latter sum was accepted as including a figure for the section 75 debt. UK's debts were also shown as including a number of other employee liabilities totalling some £39 million in all. It was submitted by Services that if there was no legal liability to pay these sums, UK's Statement of Affairs could not properly have included these sums. UK pointed out that the Statement of Affairs was after the event and could not alter the reality of the position before the administration which was that no contract was to be inferred between UK and Services.

Should UK be permitted to withdraw its concession and to amend its Grounds of Appeal?

23. Mr Bompas submitted that, if UK were to be permitted to withdraw its concession, it had to demonstrate that the point was one that really ought to be raised. It was more difficult to persuade the court to allow the appellant to raise a new point on appeal when a concession had been made, and if there was a risk that the other party would be deprived of dealing with it in a different way in the court below or on appeal. The threshold for this risk was low, and the burden of establishing the absence of such a risk was on the appellant. Mr Bompas also submitted that Services would be prejudiced if UK's application were permitted in that Services might, had the concession not been made, have dealt differently with UK's administrators in settling the case, and Services might have brought a claim against Holdings for breach of its procuring obligation in clause 3.1 of the Services Agreement. Mr Heis' statement and a letter from UK's solicitors dated 17^th February 2015 had led Services to believe that payments had been made by UK pursuant to the recharge clause and that the clause did not cover section 75 debt. Ultimately, Mr Bompas did not go so far as to submit that he was not sufficiently prepared to be able, in the hearing before us, to argue the appeal on the new basis.
24. The parties referred to a number of authorities, but it is, I think, sufficient for our purposes to refer to a dictum of Nourse LJ in Pittalis v. Grant [1989] QB 605 at page 611 (cited with approval by Longmore LJ in Brown-Quinn v. Equity Syndicate Management Ltd. [2013] 1 WLR 1740 at paragraph 15). There, Nourse LJ said that a party was bound to take a point at first instance so as to enable the other party to give evidence: "But where we can be confident, first, that the other party has had opportunity enough to meet it, secondly, that he has not acted to his detriment on the faith of the earlier omission to raise it and, thirdly, that he can be adequately protected in costs, our usual practice is to allow a pure point of law not raised below to be taken in this court". Though the point in this case is one of fact, it is bound up with a point of law as to the implication of contracts, and the relevant evidence is entirely documentary.
25. In my judgment, it is plainly appropriate in this case to allow UK to withdraw its concession and to argue the appeal on the basis that there may indeed be no implied contract at all with UK, and that the events are as easily explicable by each of the four possibilities that Mr Pascoe advanced. First, it is not clear from UK's skeleton before the judge that it was submitting before the first instance hearing that there was an implied contract between UK and Holdings. This approach seems to have appeared for the first time in Mr Hitchcock's oral submissions to the judge after Mr Bompas had already addressed the judge for nearly a day. Moreover, the concession was not clearly made even in Mr Hitchcock's own submissions but rather in response to the judge's questions. The only really clear exposition of it, before the judge's judgment, is in Mr Bompas's reply when he summarised UK's submissions. It is true to say, however, that Mr Hitchcock did not get up to rebut what Mr Bompas was contending that he (Mr Hitchcock) had conceded.
26. In my judgment, however, it is important to allow the concession to be withdrawn, because the hearing before the judge appears to have gone off track when the judge himself formed the view that the question was not really whether there was an implied contract between UK and Services, but with whom UK had made an admitted implied contract. The two questions were really quite different, because the judge never really needed to consider, on his approach, whether the legal requirements for the existence of an implied contract were met at all in all the circumstances of this case. Thus, when he considered the (entirely written) evidence, he was not asking himself whether it led to the conclusion that it was necessary to imply a contract at all, but only whether the documents pointed more clearly to an implied contract between UK and Services rather than to one between UK and Holdings.
27. Moreover, I do not think that Services has been able to demonstrate any prejudice that would be caused by UK's very late change of position in this court. Mr Bompas argued almost the whole of the case below on the basis that no such concession had been made, and was not able to submit to us that, had he known, he would have wanted to adduce more documents either to the judge or to us. We gave him an opportunity to put in any more documents that he thought we should see and he did so after the hearing. I shall refer further to these documents in due course. It is true that Mr Pascoe's skeleton before this court repeated the concession, but Mr Bompas has not submitted he cannot properly deal with the change of position. I do not see why it was any more likely that Services would have wished to sue Holdings had the concession not been made. The limitation period has still not expired. Nor do I think it any more likely that a settlement would have been reached absent the concession. In short, there is no risk that Services will be prejudiced and no risk that it would be deprived of the opportunity of dealing properly with the new point on appeal. Services was in fact able to and did argue the new point below right up to its oral reply submissions.
28. All in all, it seems to me that if UK is to be given a fair opportunity to present its case on appeal as it wishes, it should be allowed to withdraw the concession, which anyway seems to have been based on a very flimsy factual basis, since there was no evidence of Holdings having done anything at all, in relation to the seconded staff, after it entered into the Services Agreement. The circumstances in which the concession was made seem to me to make it all the more important that it should be withdrawn if the risks that have been mentioned are not, as I think they are not, actually realised.
29. I would allow UK to withdraw its concession and to amend its grounds of appeal in the form of the draft submitted by Mr Pascoe on the second day of the hearing before us (the main points of which are recited above).

The consequences of the withdrawal of the concession

30. The consequence of the withdrawal of UK's concession before the judge is, in my judgment, that we are faced with a different question from that which the judge answered. As I have said, he thought that the only question on the first issue was with whom UK had made the admitted implied contract, whereas the question is now whether it is appropriate in all the circumstances to imply a contract between UK and Services, pursuant to which Services paid the expenses of the seconded staff.
31. In these circumstances, we have to consider whether it is appropriate for us to answer this new question or whether we should remit the matter to the Chancery Division for a fresh hearing. Neither side was, it must be said, enthusiastic about the prospect of a rehearing at first instance. In my judgment, no such rehearing is necessary. The judge heard no oral evidence and neither side was able to submit that, had the concession not been made, they would have asked to cross-examine any of the witnesses who had made statements. That is hardly surprising bearing in mind that the concession was made long after the decision had been taken by both sides not to cross-examine anyone.
32. In my judgment, this court is in as good a position as the judge to evaluate the evidence with a view to answering what has now been formulated as the correct question, namely whether it is appropriate in all the circumstances to imply a contract between UK and Services, pursuant to which Services paid the expenses of the seconded staff. I will, therefore, go on to consider the first question in the appeal as I have formulated it.
33. Before doing so, however, I should mention, in a little more detail, the new evidence that the parties produced after the hearing in response to an invitation from the court. The invitation was in three parts. First, we asked the parties to produce any documents they wished us to see, which were before David Richards J, but which had not appeared in the appeal bundles because the concession had not been withdrawn. Secondly, we asked them to produce an agreed note on the accounting rules and, in particular Financial Reporting Standard 17 on retirement benefits. Thirdly, we asked Services to answer a question about who Memery Crystal was acting for when it provided the signed Statement of Affairs in March 2012. I have already dealt with that third point and need say no more about it.
34. In response to the first part of the court's invitation, Services provided a lever arch file of documents comprising the report of the administrators of Services to its creditors of May 2012, and a number of other post-administration documents. The file was, however, mostly composed of the statutory accounts of UK, Holdings and Services between 2009 and 2011. These documents were provided with an explanatory note referring to the salient parts of them and in particular to passages from the Pension Regulator's draft warning notice describing UK as the "target" in respect of the deficiencies in the Scheme, and saying, amongst many other things that UK had "actually committed itself to be liable for costs of [Services] including such pension liabilities".
35. In response to the second part of the court's invitation, the parties produced a very helpful agreed note on the accounting rules applicable to provisions, contingencies, pensions and pension schemes, insofar as they were relevant to a proper understanding of the statutory accounts of Services, UK and Holdings. The later accounts provided by the parties in addition to those for the year ended 31^st March 2008 that were considered in detail at the hearing before us did not seem to me to take the matter much further. None of them alluded expressly to an implied contract between UK and Services. In each year, the notes to UK's accounts indicated that the costs recognised in UK's profit and loss accounts represented the "contributions payable to the schemes during the year", and the facts relating to the recharge arrangements.

Is it appropriate in all the circumstances to imply a contract between UK and Services, pursuant to which UK paid the expenses of the seconded staff?

36. It is important, in my judgment, to avoid reading the helpful dicta in the cases concerning implied contracts as if they were prescriptive deeds. The most significant aspect of the consideration of whether to imply a contract is the court's consideration of all the circumstances and, in particular, of the conduct of the parties. Mance LJ gave two informative judgments on the subject in 2001 in Baird Textiles supra and in Modahl v. British Athletic Federation Ltd. [2002] 1 WLR 1192. The first principles stated in the latter judgment at paragraph 100 are valuable: "[f]or there to be a contract, there must be (a) agreement on essentials of sufficient certainty to be enforceable, (b) an intention to create legal relations and (c) consideration". At paragraph 102, Mance LJ continued by explaining the distinction between express and implied contracts: "[w]here there is an express agreement on essentials of sufficient certainty to be enforceable, an intention to create legal relations may commonly be assumed … It is otherwise when the case is that a contract should be implied from the parties' conduct … It is then for the party asserting a contract to show the necessity for implying it". In this case, the question of intention to create legal relations is, I think, the central point, because UK submits with some force that what it did was as consistent with the intention to contract directly with Services, as it was with a number of other possible scenarios. It is for this reason that the intention of the parties may be relevant in determining the existence of an implied contract (see Lord Hoffmann's speech at pages 2050-2051 in Carmichael v. National Power plc [1999] 1 WLR 2042). This is echoed by Bingham LJ in Blackpool Aero Club supra at page 1202, where he said that "[h]aving examined what the parties said and did, the court must be able to conclude with confidence both that the parties intended to create legal relations and that the agreement was to the effect contended for".
37. The starting point must be the way in which the arrangements came into being. It appears that Clifford Chance was asked to record the proposed arrangements in writing and drafted the Services Agreement of June 2007, but that no further consideration was given to the formalities. The fact that solicitors have considered the contractual arrangements is an important factor. They may even have advised that a direct contract between UK and Services was not required, but that is really only speculation. It is to be noted that the Services Agreement was drafted at a very early stage before the IPO was concluded in July 2007, before the Scheme was established, and before the companies had decided how the arrangements would work in practice.
38. In reality, the arrangements then appear to have been carried forward without further express consideration of the contractual position. It was, however, never doubted in any of the many UK corporate documents that we have been shown that UK would keep Services indemnified against all the costs associated with the seconded employees. That applied as much to the ongoing employment and social security costs as it did to the funding deficits in the Scheme. Detailed consideration was given from time to time to the way in which these costs were accounted for and how they could be reduced, but it was never doubted that UK would have to reimburse Services for each and every expense it incurred that was referable to the seconded staff. I will return to deal with some of the detail in a moment.
39. It is useful then to consider the end of the story – after UK and Services had gone into administration. At that stage, the directors of UK filed a Statement of Affairs that recorded in detail various employee liabilities including the section 75 debt totalling some £39 million. It is permissible, as Lord Hoffmann said in Carmichael supra at page 2051B, to consider evidence of subsequent conduct when considering the existence of an implied contract. I am conscious that Statements of Affairs are not always notorious for their reliability, but this one was promulgated by solicitors acting for the directors and specifically vouched for by the directors. I do not think that the fact that the solicitors also acted for Services depreciates the significance of these facts. It would be wrong, I think, to ignore the statements of these directors verifying their view that UK was legally liable for the employment costs of its staff. It appears that the Pensions Regulator's investigation may have reached a similar conclusion (after the event) to that reflected in the Statement of Affairs. I am conscious that both documents post-date the alleged implied contract.
40. The court was not much assisted by the witness statements. Only Mr Cochrane and a Mr Damian O'Connor, who worked in UK's Human Resources Department, were able to speak from personal knowledge. Mr Cochrane was only able to say that "[d]ecisions relating to the MF Global business in the United Kingdom were made by the directors of UK and where necessary, approved by the boards of any relevant group company", and that "it was my intention and understanding as a director of both UK and Services, that UK would reimburse Services for any and all the costs and funding requirements in respect of the [Scheme]", because Services had no other funds from which to do so. It is, perhaps, not surprising that Mr Cochrane could not say that he believed there was a contract between UK and Services, since the matter was obviously never considered by the directors. The question is whether, in these circumstances, such a contract must be inferred.
41. I should say something more about the detail of the evidence. First, I happily adopt the careful and concise summary of the matters the judge considered in paragraphs 28-53 of his judgment. He made one error in the citation from the minutes of a trustees' meeting of 17^th March 2011 in thinking that "SC" referred to Mr Cochrane when it, in fact, referred to Mr Craig. But I cannot see that that error was material. I do not, however, regard any of these documents as conclusive. They have, however, been said in argument to be "equivocal", but I do not think that is an appropriate description. The documents all point one way, that is towards a clear understanding by all concerned including specifically the directors of UK, that UK would pay all the costs, including pension costs, incurred by Services in respect of the seconded staff. What they do not show is that this understanding was based on any of those directors, or indeed anyone else, expressly thinking that UK was contractually obliged to pay those costs. This may not be surprising, but it is the fact. Even the Memorandum only goes so far as to state the fact that Services would claw back the pensions liability from UK, and that future increased pension contributions would be reimbursed by UK. That is not conclusive evidence of a contract between UK and Services.
42. I should mention UK's statutory accounts for the year ended 31^st March 2008, which we spent some time considering (which are not significantly different from the later ones provided to us after the hearing). Those accounts report UK's expenditure of some US$330 million on staff (including pension) costs, making it clear that the 659 staff (many more than were members of the Scheme, of course) were employed by Services, and that the Scheme's assets and liabilities had been reflected in Services' financial statements in accordance with Financial Reporting Standard 17. It was noted that the costs relating to the staff's pension contributions had been recharged to UK. The directors' report said that "[f]or the purposes of [UK's] employment policies these individuals are considered as though they are employees of [UK]". None of the group's statutory accounts were conclusive in establishing an implied contract between UK and Services, but again they demonstrated an understanding that UK would pay all the costs, including pension costs, incurred by Services in respect of the seconded staff.
43. The next question concerns the suggestion that there may have been an implied contract between Holdings and UK. This was the argument upon which UK founded its case at first instance. There was, as the judge said, no evidence at all of any involvement by Holdings in the arrangements after it had entered into the Services Agreement. In those circumstances, it would, I think, be wholly artificial to infer a contract between Holdings and UK, under which Holdings gave effect to its clause 3.1 procuring obligation, when there was no evidence that that was the intention of the directors who were responsible for dealing with the secondment of the staff and the payment for their services.
44. In the end, therefore, the issue boils down to the question of whether the arrangements between UK and Services amounted to (a) an agreement on essentials of sufficient certainty to be enforceable, (b) in circumstances in which it was necessary to infer a contract and an intention to create legal relations, rather than an informal arrangement to give effect to clause 3.1 of the Services Agreement or to assure the continued employment of the staff to do their jobs.
45. I was initially in doubt as to whether the arrangements between Services and UK were of sufficient certainty to allow a contract to be implied, but ultimately I have concluded that they were. It is true that one can pose situations where it might be unclear what precise obligations might exist. But the central point is that both Mr Cochrane's statement and all the documents point towards a clear understanding that UK would pay all the costs, including pension costs, incurred by Services in respect of the seconded staff. The arrangement was normally on a recharge basis, though pension deficits seem to have been paid by UK directly. I cannot see any material uncertainty in the terms of the arrangement. It is, however, the second question that is key to the outcome.
46. It is a significant step to infer a contract between well-advised substantial commercial companies within a group who must be taken to have decided (implicitly if not expressly) that they did not need to record their mutual obligations in writing. There are no reported cases where such a contract has been inferred by conduct in this kind of situation, as opposed to in situations of rather less common occurrence. I have taken into account that large corporations frequently use a service company to employ their staff, and then second those staff to the various operating companies in the group as happened here. I am conscious also of the difficulties that could have occurred (but apparently did not) had there been several operating companies with staff moving between them. In that situation, an inferred contract might need implied terms as to apportionment, which would be hard to pin down. But in the end I have concluded that the established relationship between UK and Services by which Services employed UK's staff and recharged all the costs of doing so to UK is only explicable in the particular circumstances of this case on the basis that it had a contractual foundation. The parties must have intended there to be a legally binding arrangement. One cannot imagine that the entitlement to payment of some US$330 million per annum can have been left to a non-contractual arrangement. UK's Statement of Affairs, vouched for by its directors, albeit after the event, must, in my judgment, have reflected the reality. The documents are most important for what they do not say. There is not one word in the email correspondence or in the accounting documentation that suggests that UK is not legally liable to reimburse Services for all the costs associated with the seconded staff. Looking at all the circumstances and all the documents, it is right to infer that such reimbursements were made pursuant to the implied contract which the judge found.
47. Before leaving this subject, I should mention the part of Bingham LJ's dictum in The Aramis on which Mr Pascoe placed the greatest reliance. He said that "it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract". It was said, at the least, that Services and UK might have acted as they did without a contract, bearing in mind the Services Agreement that was in place. I do not agree. The documents reflect an understanding that UK would pay all the costs incurred by Services in respect of the seconded staff. That is, in the circumstances of this group and these companies, tantamount to reflecting an understanding that UK was obliged to reimburse Services. It was that latter understanding that was, I think, correctly recorded by the directors of UK in UK's Statement of Affairs.

Did the implied contract include an obligation on UK to indemnify Services in respect of its section 75 debt?

48. The parties devoted far less attention to this point. In my judgment, however, the judge was right for the reasons he gave to conclude that clause 3 of the Services Agreement extended to create a procuring obligation in respect of the section 75 debt. When I asked Mr Pascoe why he said that the section 75 debt was not included in the "aggregate costs in relation to each of the Secondees in the period of any assignment under [the Services Agreement] of all salary, bonus, contractual and discretionary cash and non-cash benefits …", he was only able to submit that the section 75 debt crystallising as it did just before the administration of Services was not "in the period of any assignment". That argument was, I think, wrong, since the staff were still seconded to UK in that scintilla temporis before the administration, whatever might have been the position thereafter. It was common ground that if the section 75 debt was included in clause 3, it was the subject of an implied contract between UK and Services.

Conclusions

49. For the reasons I have sought shortly to give, I would allow UK to withdraw its concession that there was an implied contract between Holdings and Services, and I would also give UK permission to amend its Grounds of Appeal. On consideration of the statements and the documentary evidence on that basis, however, I have concluded that the judge was right to have found that an implied contract existed between UK and Services, pursuant to which UK was obliged to pay all the costs, including the section 75 debt, in respect of the seconded staff.
50. I would, therefore, dismiss this appeal.

Lord Justice Sales:

51. I agree.

Lady Justice Gloster:

52. I also agree.