England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT

		Royal Courts of Justice Strand London WC2
		9th March 2004

Tuesday, 9th March 2004

1. MR JUSTICE ELIAS: This appeal is brought by the Construction Industry Training Board against the decision of the Ashford Tribunal in which the tribunal set aside the industrial training levy of the defendant company, Scalegold, which had been assessed at a little over £2,000.
2. The CITB is a statutory body created under powers in the Industrial Training Act 1982. Its role is to promote and facilitate and finance training in the construction industry. Under the 1982 Act it is empowered to impose a levy on construction industry firms in order to finance its activity. Where the levy is due it must be paid whether or not the company involved wishes to take advantage of any of the services offered by the CITB.
3. Scalegold is a joinery business. It produces bespoke items in wood, principally to customers' specific order and design. It does not have its own product range. It cuts raw timber using computer controlled machinery and then the parts are finished and assembled, again using different machines, by skilled craftsmen. The company makes a whole variety of wooden articles, including furniture such as chairs and tables, and window frames, doors, kitchen and bathroom units and staircases. Some of the products are sold to clients in the construction industry. Scalegold does not, however, install its own products.
4. On 19th March 2003 CITB issued a levy assessment notice on Scalegold. The sum was estimated because Scalegold had not returned the CITB's levy assessment documentation, having taken the view that it was not liable to make any payment. Scalegold filed a notice of appeal to the Employment Tribunal against the estimated levy assessment. Its principal ground of appeal was that a levy should not be imposed on a company whose joinery activities were not performed on the site.
5. Detailed written representations were made to the Employment Tribunal and, in addition, Mr Escott, the company's managing director, who skilfully represented the company both before the Tribunal and before me, also gave oral evidence to the Tribunal. I do not have the notes of that evidence.

The relevant legislation

6. The relevant legislation is contained in two statutory instruments. First, there is the Industrial Training Levy (Construction Board) Order 2003 and, second, the Industrial Training (Construction Board) Order 1964, which I term the "Levy Order" and the "Scope Order" respectively. The purpose of these orders is to define who is to pay the levy and how it is to be assessed.
7. Article 2 of the Levy Order defines the construction industry by reference to the Scope Order. Article 2(e) says this:

"'The construction industry'... means any one or more of the activities which, subject to the provisions of paragraph 2 of the Schedule to the... [Scope Order], are specified in paragraph 1 of that Schedule as the activities of the construction industry."

8. The levy is imposed not company by company, but rather on an establishment. A construction establishment is defined by Article 3 as:

"... 'construction establishment' means an establishment engaged wholly or mainly in the construction industry during the necessary period."

I need not consider the meaning of "necessary period" because there is no dispute about that here.

9. Article 4 then imposes the levy on each construction establishment. Accordingly, if a company has a separate establishment operating within the construction industry it must pay a levy with respect to that establishment, even if the main body of its operations is outside that industry.
10. As I have indicated, the crucial provision for defining the scope of the activities caught by the term "construction industry" is contained in the schedule to the Scope Order. Paragraph 1 defines the activities of the construction industry as including at (c):

"The manufacture of -

(i) doors, window frames, built-in storage units, stairs or curtain walling being articles wholly or mainly of wood;

(ii) bank, church or laboratory joinery or joinery of any other kind."

11. Paragraph 1 sets out the principal activities which are caught, but they are then subject to various exclusions contained within paragraph 2 of the schedule. Paragraph 2(c) contains a whole series of exclusions, the relevant one of which is sub-paragraph (xx). The provision is as follows:

"There shall not be included in the activities of the construction industry... the activities of any establishment engaged wholly or mainly in the activities following or any of them, that is to say...

"(xx) the manufacture or fabrication of building products from timber or timber based materials where the activity is automated and carried out away from the site of any building work or civil engineering works."

12. Finally I should also refer to the concept of manufacture which is defined in paragraph 3 of schedule 1 as follows:

"'Manufacture' includes assembly or any process or operation incidental or appertaining to manufacture or assembly."

13. The appeal to the Employment Appeal Tribunal was made pursuant to Article 9 of the Levy Order. The burden of proof in such an appeal is on the levy payer and not on the CITB: see section 12(5) of the 1982 Act.
14. The further appeal to this court is made pursuant to section 11 of the Tribunals and Inquiries Act 1992 and it is only on a point of law.

The decision of the Employment Tribunal

15. The Tribunal's decision was relatively brief. Paragraphs 3 to 5 set out the basic operations carried on by the defendant's business. They reflect the comments that I made about his business earlier.
16. At paragraph 6 the Tribunal noted that Mr Escott was unable to tell them what proportion of work related to the production of freestanding items, such as furniture, and what proportion represents products which will later be fitted into buildings. Because the Tribunal had no information about that, they were not able to say that the business was predominantly involved in making furniture, as opposed to making items that would fall within paragraph 1(c) of the schedule.
17. The key conclusions of the Tribunal are set out between paragraphs 12 and 15. They are as follows:

"12. We come now to paragraph 2(xx). The words are clear and unambiguous and we find that the result of applying those words is to take the Appellant's business outside the activities of the construction industry.

"13. We have had regard to the submission that the omission of the words 'on site' from 'joinery of any other kind' in paragraph 1(c)(ii) brings the Appellant's business within that sub-paragraph having regard to other sub-paragraphs where 'on-site' or equivalent words have been used. We have concluded that that interpretation cannot prevail against the very clear words of paragraph 2(xx) which specifically exclude the manufacture or fabrication of building products from timber where the activity is automated and carried out away from the site of any building work. Any product to be installed in a building is a building product.

"14. In constructing both of these provisions, we refer again to the case of Mark Wilkinson Furniture Ltd v CITB, and to the helpful guidance on interpretation set out in the judgment at paragraph 8. Having regard to items 4 and 5 of such guidance, whilst it may have been the intention of the Order to exclude mass produced timber items from the operation of the Order, it also seems to us that a business which produces by machine items which are later installed in a building by somebody else would also not have been intended to have been included in the Order. In any event, we have applied the guidance that if there is an ambiguity, the interpretation should not be strained against the taxpayer.

"15. There is clearly an ambiguity in this case in that there seems to us to be a direct conflict between the provisions of paragraph 1(c)(ii) which include joinery businesses and paragraph 2(xx) which excludes businesses manufacturing timber items off site. That ambiguity should be construed in favour of the Appellant. We so find and it is our unanimous decision to allow this appeal."

The submissions of the parties

18. Mr Jaffey for the CITB submits that the Tribunal has erred in a number of respects. He says that the proper approach which the Tribunal ought to have adopted was, first, to ask whether the business carried on by the appellants fell within paragraph 1(c) of the schedule to the Scope Order. Here there could be no doubt that it did, he submits, under both limbs of the provision, but on any view under the first limb.
19. Thereafter, the only question is whether it could bring itself within the relevant exception. The only potentially relevant one was paragraph 2(c)(xx). As that provision makes clear it is only satisfied if two conditions are met. First, the work must be off-site, as plainly it is in this case. Second, it must be automated activity. He submits that that is the key question here which the Tribunal had to grapple with, and that they have failed properly to address that question.
20. He made three criticisms in particular of the approach of the Tribunal. First, he says they were in error in concluding, as they did in paragraph 15, that there was any conflict between the provisions of paragraph 1(c)(ii) and paragraph 2(c)(xx). There is no conflict at all, he submits. The activities set out in part 2 are those which would, or at least arguably would, be caught within paragraph 1 but for the exception. In other words, it is only if part 1 is engaged that it is necessary to go on to consider part 2 of the schedule at all. It is misleading to talk about a conflict between two provisions where one merely provides an exception to the other.
21. Second, he submitted that the Tribunal seemed to have assumed, without any proper analysis, that if a business produces items by machine, then that is sufficient to characterise the activity as an automated activity.
22. Mr Jaffey accepts that whether a business is automated is a mixed question of law and fact. It follows from that, of course, that there will be an area where different tribunals may justifiably reach different decisions on that issue without it being able to be said of either that there has been an error of law.
23. However, in this case he submits that the Tribunal have not made any relevant findings which it was obliged to make before it could properly conclude that the activities were automated. For example, he submits that it was necessary for a consideration of the assembly work that is carried out by employees of the company. Assembly is, as I have indicated, part of the definition of manufacture and he says the Tribunal ought to have examined the extent to which joinery skills are required as part of that operation to decide whether overall the activity could properly be characterised as automated. He submitted that the mere fact that articles are produced by craftsmen who use machines, such as power tools, did not render the activity an automated activity.
24. Finally, he criticised the fact that in paragraph 14 of its decision the Tribunal had referred to the fact, as though it may be a material one, that items produced by the company were later installed into a building by someone else. This, he submits, is entirely irrelevant to the question of whether an operation or activity falls within the scope of paragraph 2(c)(xx). There is no mention of that as a requirement in that paragraph, and if it were a relevant criterion, then the legislation would have said so.
25. Mr Escott made a number of linked submissions. First, he submitted that the exclusion applies whenever the products are manufactured off-site. He referred to certain other provisions where that is made plain. For example, paragraph 1(b) concerning the cutting and bending of reinforced steel, paragraph (d), concerning the construction of shop, office or similar fittings, and certain other provisions of like effect. He argued that historically it made most sense to exclude manufacturing companies such as his if they produced the products off-site, at least where they were not involved in the installation. He said that when these regulations were first drafted all the products would have been carried out on-site or by construction employers who would then have installed products which they had manufactured off-site.
26. That may be true, historically, but the real difficulty with this argument is the very fact that there are some provisions where the legislation has made it plain that in order to be covered an activity must be carried out on-site or is excluded if it is off-site.
27. Where regulations descend to that sort of detail it seems to me not possible to say that one can imply that that is a condition which operates to limit the scope of paragraph 1(c). Furthermore, it makes no sense of the exception at paragraph 2(c)(xx). As I have indicated, there are two conditions that have to be satisfied for the exception to apply, both automation and the fact that the manufacture is off-site. If Mr Escott were right then only one condition would be necessary. Indeed, if that were to be implied in paragraph 1(c) then there would be no need for the exception at all.
28. Equally, there is nothing in the definition which supports the view that someone manufacturing off-site is only caught if they install the product. Again that is expressly referred to in certain paragraphs but not here.
29. Finally, and perhaps most pertinently, he submits that the Tribunal heard evidence about the activities that his company carries on, both written and oral, and he submits that, read fairly, their conclusion plainly is that the exception applies. They were aware that the activities had to be automated, they referred specifically to that fact in paragraph 13 of the decision. In this case he submits that where they refer, in paragraph 14, to a business which produces items by machine, they ought to be taken as concluding that this business was one which could fairly be characterised as one where the activity was automated within the meaning of sub-paragraph 20. Even if the decision is not explained as clearly as it might, it is a conclusion, Mr Escott would say of fact, but I think more accurately of mixed fact and law; there was an evidential basis for it and, accordingly, the court should not interfere.
30. I find much of Mr Jaffey's argument wholly persuasive. I accept that there is no conflict between paragraphs 1(c)(ii) and 2(c)(xx), but one is merely an exception to the other. The provisions in paragraph 2 only need to be applied if paragraph 1 is applicable. I accept too that there is no basis at all for saying that manufacturing is excluded if it is off-site, that is not what paragraph 1(c) says. Nor, indeed, is the exception in paragraph 2(c)(xx) so limited. Nor is it relevant whether another person undertakes the installation of any of the products. If the two conditions in paragraph (xx) are met and the business otherwise falls within the terms of paragraph 1, then it will be exempted. But if the two conditions are not met, then it will not.
31. The crucial finding of the Tribunal, however, was its conclusion that sub-paragraph (xx) applied. Was it entitled to reach that view? Perhaps more relevantly: can its decision be read so as to conclude that it has reached that view? I have concluded, not without some doubt, that it can. I do not accept Mr Escott's submission that an activity can be described as automated merely if some labour-saving machinery is used in the course of the production process. Every carpenter or joiner will use labour-saving and timesaving tools such as power drills and lathes and so forth.
32. Without seeking to formulate a definition as such of automation, I accept that in essence, as Mr Jaffey suggested, the question is whether the product can fairly be said to be produced by machines or whether it would be more accurate to describe the products as being made by craftsmen using machine tools. The justification for this distinction, as Mr Jaffey noted, is that it provides a reason for the exclusion of automated products.
33. Where the products result from an automated process, the training services which the construction industry training board has to offer are not really relevant to the skills of those particular workers; they are machine operators rather than skilled craftsmen or joiners, although, of course, they may need some of the skills of the latter. They will principally require the engineering skills of those repairing and maintaining and operating machines, rather than the traditional craft skills of the skilled carpenter and joiner. It is then inappropriate for them to fall within the scope of the CITB.
34. It is, I think, this distinction which the Tribunal was, perhaps rather inelegantly, groping towards in paragraph 14 of its decision when it referred to the fact that the business produced machine items. I accept that it would have been desirable for this conclusion to have been spelt out in terms, and that the Tribunal could better have stated, expressly, that it was concluding that the activity could properly be described as automated. But as has often been said in looking at tribunal decisions of this kind, one does not examine the reasoning with a fine tooth comb.
35. I think read fairly, and bearing in mind the Tribunal did specifically refer to the wording of the exception, that it can be said to have reached the conclusion that the activity was essentially an automated one. That was, after all, what Mr Escott was urging as part of his submissions, though it is true that his principal ones were directed elsewhere. Equally, the argument on behalf of the CITB was that this was not an automated process.
36. Mr Jaffey says that the Tribunal ought not to have reached this conclusion without first assessing the activities of the finishers and assemblers, but I cannot assume that they have ignored that fact. Mr Escott says that they too are using sophisticated machinery. I am not in a position to know to what extent, at the end of the day, that is correct or not. But, as I have said, there was oral evidence before the Tribunal, as well the written submissions which I have seen, and I must fairly assume that there was material before the Tribunal which would have justified this conclusion.
37. The question, it seems to me, is really whether it can be said that they have made a finding that the activities are automated, notwithstanding that they have not said so in terms. As I have indicated, I think that fairly read they can. That is enough to save this decision. Accordingly, on this narrow ground, namely that the Tribunal can, read fairly, be said to have reached a finding that the activity was automated, and given that there was, on any view, factual material to support that conclusion, I dismiss the appeal. But, as I have indicated, I reject some of Mr Escott's wider arguments. In particular I do not accept that the mere use of labour-saving tools constitutes an automated activity.
38. For the reasons I have given I dismiss this appeal.
39. MR JAFFEY: My Lord, my clients will need some time to digest the implications of your Lordship's judgment, but can I ask now for permission to appeal. I am not saying that my clients will appeal, but can I ask for permission on the basis that these are important issues which will have an effect in a substantial number of other cases?
40. MR JUSTICE ELIAS: I think not, and I will tell you why, just so you know why not. I do not really accept that that is so. I have found this on a very narrow basis; that one can read the Tribunal's decision in the way I have indicated. I think I have made plain that some of the concerns you had of the Tribunal's decision were proper concerns, and that the Tribunal's reasoning on those points is wrong as far as any future individuals are concerned. I think I have accepted in a broad way your analysis of what an automated business is, which, if I may say so, I found a helpful contribution.
41. I am only saying that to indicate that it seems to me this case simply turns on really whether one can infer that there is sufficient in the decision to say they have reached a conclusion on their point. It seems to me that is of no intrinsic interest to anyone else.
42. I should add, in any event, when I think about it, I cannot give leave to appeal because there has already been two appeals. So I am afraid, in any event, you will have to go to the Court of Appeal if you want a third appeal which is rather difficult to get.
43. MR JAFFEY: Your Lordship is right, I spoke without --
44. MR JUSTICE ELIAS: I have tried to address your concerns, however, as to the wider implications of any decision I reached.
45. MR JAFFEY: Yes.
46. MR JUSTICE ELIAS: Can I thank you both for your clear submissions on this matter.