QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| HUDSON CONTRACT SERVICES LIMITED
|- and -
|CONSTRUCTION INDUSTRY TRAINING BOARD
MR CHRISTOPHER KNIGHT(instructed by Field Fisher) for the Respondent
Hearings dates: 6 and 7 December 2018
Crown Copyright ©
MRS JUSTICE LAMBERT :
i) whether Hudson is an employer in the construction industry for the purposes of s. 11(2) Industrial Training Act 1982 and Article 3(1) of the 2015 Order;
ii) whether Hudson has a "construction establishment" for the purposes of Article 5 of the 2015 Order.
The Statutory Framework
The 1982 Act
(1) An industrial training board may from time to time submit to the Secretary of State proposals (in this Act referred to as "levy proposals") for the raising and collection of a levy to be imposed for the purpose of raising money towards meeting the board's expenses.
(2) The levy shall be imposed in accordance with an order made by the Secretary of State (in this Act referred to as "a levy order") which shall give effect to levy proposals under subsection (1) above and shall provide for the levy to be imposed on employers in the industry, except in so far as they are exempted from it by the industrial training order, the levy order or an exemption certificate; but nothing in this Act shall be construed as requiring the Secretary of State to make a levy order in a case in which he considers it inexpedient to make one."
"employee" includes a person engaged under a contract for services and "employer" shall be construed accordingly;
"employment" means employment under a contract of service or apprenticeship or a contract for services or otherwise than under a contract, and "employed" shall be construed accordingly;
The "Scope Order"
(h) any activities (other than those above-mentioned) being:
(i) related activities incidental or ancillary to principal activities of the construction industry; or
(ii) activities undertaken in the administration, control or direction of one or more establishments, being establishments engaged wholly or mainly in principal activities of that industry, in related activities incidental or ancillary thereto, or in the administration, control or direction of one or more other establishments engaged in such principal or related activities;
and carried out, in either case, by the employer engaged in those principal activities or, where that employer is a company, by the company or by an associated company of the company;
(i) any activities of industry or commerce (other than construction activities) carried out at or from an establishment mainly engaged:
(i) in construction activities; or
(ii) in construction activities and in activities described in the Appendix to this Schedule, but to a greater extent in construction activities than in activities described in that Appendix in relation to any one industry.
The 2015 Order
(1) The Board must assess the amount of levy to be paid in respect of each construction establishment of an employer.
(2) In this Order "construction establishment" means any particular establishment of the employer engaged wholly or mainly in the construction industry during the necessary period.
(4) The person who on the first day of the relevant levy period owns or otherwise has responsibility for a construction establishment is to be treated as the employer of all persons employed at or from that establishment during the relevant base period.
(2) In respect of the third levy period, the amount of the levy to be assessed in respect of each construction establishment is:
A + B
A is the amount equal to 0.5% of all emoluments which have been paid or are payable by the employer to or in respect of persons employed by the employer at or from the establishment in the relevant base period; and
B is an amount equal to 1.25% of the relevant part of all contract payments made by the employer at or from the establishment in the relevant base period.
The Levy History
(1) at  there had been extensive discussions during the consultation process leading up to the 2015 Order with clear evidence of industry support for the new system and for the view that the old system unfairly favoured those in the middle of the chain of payments;
(2) at - the new levy system was not intended to increase the amount of levy raised overall but to raise approximately the same amount of levy as in previous levy years but by a different method and that such a "novel method must produce losers as well as winners." The industry was entitled to have a system which did not increase significantly the burden which the industry must collectively bear. Kerr J accepted that the change involved an element of "rough justice" but this must be set against the evidence of a properly undertaken, and lawful, consultation process and widespread industry support and parliamentary approval. Kerr J accepted that, in broad terms, the 2015 Order was enacted for the purpose of giving effect to the wish to simplify levy collection while raising adequate funds to train the workforce and secure an adequate supply of skilled labour;
(3) at - Hudson benefitted from having a stable and well-trained workforce. Whilst it did not itself retain the services or employ a constant pool of labour, its business was assisted by the availability of a competent workforce selected by others without which it could not trade as effectively as it does. He noted that "it has in the past received that benefit without paying any levy for the privilege of receiving it. There is nothing intrinsically unfair about Hudson now being asked to give something back to the industry in return for continuing to receive the benefit." The fact that Hudson complained that if liable to levy it could not pass on to its customers the cost of that liability (because contracts made in respect of work done in the third levy period were based on the old system and the terms could not now be reopened), did not make the levy unfair to Hudson or anyone else;
(4) at  the new method of levy calculation did not lead to double taxation in the strict sense in that no one person was liable to pay the levy twice over in respect of the same subject matter. Whilst there may be an element of double or multiple recovery in that levy payments may have to be made in a significant number of cases by more than one person in respect of the same subject matter, this was not unlawful.
(1) I should try to determine the objective intention of Parliament in legislating. In so doing I should consider first the plain and ordinary meaning of the language used. If the language is clear and it produces a logical outcome, then there is no need, as Mr Maugham puts it, to "mediate that literal conclusion."
(2) If the words used are ambiguous however or they produce a construction which is powerfully counter-intuitive then there are a number of aids to construction, or guides or presumptions, available to the Court including: the immediate legislative, historical and factual context of the legislation and the purpose of the legislation. So far as possible the language should be interpreted where possible to give effect to that purpose. The Court presumes that Parliament does not intend to legislate so as to produce a result which (i) is inconsistent with the statutory purpose and (ii) makes no sense or is anomalous or illogical.
(3) Both Counsel agreed that the levy was a tax. As such it should not be ambiguously imposed. There is no different approach to the interpretation of tax legislation. The same principles of statutory construction apply, save only that some presumptions of particular relevance to the tax context will be more likely to be useful.
Is Hudson an "employer in the construction industry"?
(1) the 1982 legislation does not define the phrase "employer in the construction industry" in a compendious way: "employer" is defined and "the construction industry" is defined but there is no definition provided by the draftsman of the phrase itself. This, he submits reflects that whether a person is an employer and whether that person is "in the construction industry" are legally distinct concepts. They are also factually distinct concepts: an employer can be an employer without being in the industry and vice versa. He submits that if the phrase were to be construed as a composite then the draftsman would have defined it. He/she did not do so. The Court should therefore approach the construction exercise by looking at the terms separately.
(2) To ask whether Hudson is an employer is to pose the wrong question. Mr Maugham accepts that Hudson is an employer (of both directly employed staff and statutory employees). The relevant question is whether Hudson is "in the construction industry." Mr Maugham submits that there is nothing in the 1982 Act nor in the 2015 Order which supports the approach taken by the Tribunal that this question should be answered by reference to statutory employees. If that had been the intention of the draftsman, then this would have been made clear. There is, as he puts it, no statutory mandate for such an approach. There are in fact clear pointers the other way. For example, the legislative scheme treats directly employed employees differently from self-employed operatives for the purposes of the nuts and bolts of the levy assessment. R (Buildstone Ltd) v Secretary of State for Education and Employment CO/1694/2000, an unreported decision of Sir Richard Tucker, provides an explanation for the different treatment of different classes of employees for levy purposes: self-employed operatives are not "part of the organisation" whereas the directly employed contingent are. Mr Maugham argues therefore that whether an employer is in the construction industry is not to be judged by looking at what its statutory employees do but what the directly employed workforce do: they are part of the organisation whilst statutory employees are not.
(3) Mr Maugham relied upon a new point not advanced below. No objection was taken by Mr Knight. Article 5 prescribes that the levy will be assessed in respect of each construction establishment of an employer (Article 5(1)). Article 5(2) defines a construction establishment as "any particular establishment of the employer engaged wholly or mainly in the construction industry". Whether a construction establishment is "in the construction industry" is not to be answered by reference to the activities of its statutory employees but whether it is wholly or mainly in the construction industry. Mr Maugham's point is that on the Board's case "in the construction industry" will bear a different meaning depending upon whether you pose that question of an employer or of a construction establishment. This, he submits, supports his interpretation of Article 3(1): the phrase "in the construction industry" must logically have the same meaning whether you ask it of an employer or of a construction establishment and should be construed without regard to the activities of statutory employees.
The Board's Submissions
(1) The levy is all about employees; they are central to the purpose of the statutory scheme as a whole and they drive the scope of the levy application. This is consistent with the definition of employer in the 1982 Act which is subordinate to the definition of an employee: the employer is defined directly by reference to its employees. This is critical to the understanding of the legislative purpose of the scheme.
(2) The phrase "employer in the construction industry" should be interpreted as a phrase, not broken down and analysed word by word. The draftsman has used the word employer, rather than, say, business or organisation or person and it follows that that word is the important linguistic context to the phrase "in the construction industry." There is no reason why the statutory definition should not apply to the reference to an employer in Article 3(1). If the draftsman had intended that a different, common law definition, would apply then he would have made that clear.
(3) An employer is what its employees do. Establishing what an employer in the industry does by reference to what its employees do is, as a matter of ordinary language and the statutory terminology, the correct approach. In the context of a levy which is imposed to further industrial training, answering liability by reference to employee activity is logical and purposive. There is no reason why for the purpose of construing Article 3(1) the Court should look only at the handful of directly employed workers and ignore the 20 odd thousand operatives. Whilst such an approach may be appropriate in other legislative and non-legislative contexts, it is not appropriate given the wide definition given to an employer in the primary legislation which includes both the employed and the self-employed.
(4) Mr Knight rejects Mr Maugham's "new point" which arises from Article 5(1). Article 5 maintains the language of employer. In particular, Article 5(2) states that a construction establishment means any particular establishment of the employer (in the construction industry) engaged wholly or mainly in the construction industry. The concept of an employer is not therefore divorced from the section. Just as an employer can only act through its employees, so can an establishment. What an establishment does can only be answered by asking what employees do at or from it.
(5) Mr Knight submits that Buildstone does not assist Hudson's argument. He accepts that the 1982 Act does not treat self-employed operatives and directly employed workforce as identical for the purposes of the levy assessment. There are relevant differences in terms of their training needs. However, employers of both categories of workers are subject to levy. He argues that if Hudson is correct and the self-employed workforce is to be disregarded in determining whether an employer is in the construction industry at all, the levy differential would not make sense. Setting the levy differently in relation to different categories of employee is a different issue from one category being irrelevant to whether the levy should be raised at all.
(6) As to Mr Maugham's subsidiary points: Mr Knight rejects the value of a comparative study of the 2015 Order with any equivalent Order made in respect of another industry. The Engineering Board Order is a different Order made at a different time in relation to a different industry. As the Tribunal held, different industries operate different patterns of employment which can change over time in response to a variety of different situations. The reason for the inclusion of the provision in the Engineering Board Order (in 1967) and the non-insertion of an equivalent provision in the Construction Board's Order is a matter of pure speculation. The case of Cox does not assist Hudson: it concerned the circumstances in which the scope of vicarious liability might be extended beyond the traditional confines of a common law employer/employee relationship. He does not, in any event, accept that the various indicia of a relationship sufficient to give rise to vicarious liability are not present in the relationship between Hudson and the operatives.
Does Hudson have a construction establishment?
The Board's Submissions
(1) Article 5(4) does not require every employee in the statutory sense to have only one employer and for that employer alone to be liable to levy.
(2) On a sensible construction, all that Article 5(4) does is to prescribe that in respect of each construction establishment, each employee shall only have one employer. The purpose of the provision is to determine, in the context of a change of ownership or responsibility of a construction establishment during the levy period, who is to pay the levy. Article 5(4) stipulates that it is the owner at the beginning of the levy period. This is not the same thing as saying that in respect of each employee, there can only be one employer.
(3) Depending upon whether the statutory definitions in Article 7 are met, then there may be two lots of levy payable in respect of the same operative for the same work. There is however no prohibition on more than one levy being raised in respect of the same work for the reasons stated by Kerr J in Hudson 1. In any event, whether more than one levy is to be paid will depend upon the CIS status of each of the parties in the chain of payments and currently Hudson's operatives are not gross registered, so payments to them from Hudson are caught by article 7(2); however Hudson itself is gross registered so a payment to it by a client is not subject to levy.
Analysis and Conclusions:
a)The Employer in the Construction Industry Question
b) The Construction Establishment Issue