Neutral Citation Number: [2019] EWHC 45 (Admin)
Case No: CO/2252/2018
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 18/01/2019
Before :
MRS JUSTICE LAMBERT
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Between :
	HUDSON CONTRACT SERVICES LIMITED	Appellant	
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	CONSTRUCTION INDUSTRY TRAINING BOARD	Respondent	
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MR JOLYON MAUGHAM QC AND MR CHRISTOPHER STONE 
 (instructed by Norton Rose Fulbright) for the Appellant
MR CHRISTOPHER KNIGHT 
(instructed by Field Fisher) for the Respondent

Hearing Dates: 6 and 7 December 2018
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JUDGMENT
MRS JUSTICE LAMBERT :
1.	This is a statutory appeal under s. 11(1) Tribunals and Inquiries Act 1992 from the ruling of the Employment Tribunal of 18 May 2018 dismissing Hudson’s appeal under s. 12(4) Industrial Training Act 1982 against an assessment to levy notice (“the Notice”) issued by the Construction Industry Training Board (“the CITB”) in March 2017 in the sum of £7,964,584.  The Notice had been issued by the CITB under its statutory duty to assess to levy employers in the construction industry in accordance with the Industrial Training Levy (Construction Industry Training Board) Order 2015 (SI 2015/701), (“the 2015 Order”).
2.	There were two issues before the Employment Tribunal:
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.
3.	The Employment Tribunal (“the Tribunal") answered both questions in the affirmative. Hudson appeals that decision.  The appeal is restricted to a point of law and, like the challenge before the Tribunal, is an exercise in statutory interpretation focussing upon Articles 3 and 5 of the 2015 Order.   I am in as good a position as the Tribunal to perform the exercise of statutory interpretation and have not therefore deferred to the Tribunal’s reasoning, save where, for the purpose of resolving various points and arguments, the Tribunal has obviously relied upon its relevant industrial expertise.   
4.	Mr Jolyon Maugham QC leading Mr Stone appeared on behalf of Hudson.  Mr Knight appeared on behalf of the CITB.  
Hudson
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 Mr Maugham 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 Board
9.	The Board was founded in 1964 (see below) with headquarters now near King’s Lynn, Norfolk.  Originally there were as many as 20 such boards associated with various industries, but now there are only two, the other being in engineering construction.

The Statutory Framework
The 1982 Act
10.	The Industrial Training Act 1982 (“the 1982 Act”) provided for or, more accurately, maintained provision for, the establishment of industrial training boards for the purpose of the training of persons for employment in activities of industry or commerce.  The CITB is one such board.  It was established under the original legislation: the Industrial Training Act 1964 (“the 1964 Act”).  Section 5 of the 1982 Act sets out some of the various ways in which the relevant industrial training board may facilitate, or enable, the training of persons employed or intending to be employed, in the industry; for  example, by providing courses itself, or by approving courses provided by others, or by the publication of recommendations with regard to the nature and length of training and by funding persons attending courses provided or approved by the relevant board.
11.	Section 11 of the 1982 Act, provides that a levy may be imposed on employers in the industry for the purpose of meeting the expenses of the industrial training board:
(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.” 
12.	The person, or body, against whom a levy may be raised must be “an employer in the industry.”  Two points of potential importance arise here.  First, section 1(2) of the 1982 Act provides a definition of employee which is, as the Employment Tribunal noted (and was not disputed before me), significantly wider than either of the definitions of employment (as a contract of service in the Employment Rights Act 1996 or the Equality Act 2010 extension to include some of those working under a contract for services) with which Employment Tribunals typically work.  The term employee covers not only the directly employed workforce but also those engaged under a contract of self-employment.  Second, the definition of employer is not free-standing, but is subordinate to the definition of employee.  Thus: 
“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”
13.	The industry is not defined in the 1982 Act, save that “in relation to an industrial training board, means the activities in relation to which it exercises functions.”  The definition of construction industry must be read across from the Schedule to the Order establishing the CITB: the Industrial Training (Construction Board) Order 1964 (SI 1964/1079) as amended by the Industrial Training (Construction Board) Order 1964 (Amendment) Order 1992 (SI 1992/3048), the so-called “Scope Order.” Schedule 1 of  the Order includes a comprehensive list of all operations which constitute “activities of the construction industry.”  The list includes “principal activities” (e.g. the construction, alteration, repair or demolition of a building or part of a building, aerodrome, bridge etc; the preparation of the site or the laying down of foundations) and other “related activities” which are defined in paragraph 3 of the Schedule as including “operations of a kind performed at office premises or laboratories or at stores; warehouses or other places.” 
14.	Related or other activities, can nonetheless be activities of the construction industry if they fall within section 1 (h) or (i) of Schedule 1, that is: 
(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. 
15.	Paragraphs (h) and (i) are convoluted.  However, the Tribunal pithily summed up their effect at [25] when it said that the categories in (h) and (i) are “only counted as construction activities if there are principal activities also being carried out by that employer.”  On the Hudson facts, it was common ground between Mr Maugham and Mr Knight that the activities which Hudson carries out at its head office, via its directly engaged workforce, are not construction activities but related activities.  However, they become construction activities if they are incidental to principal activities of the construction industry and undertaken by an employer engaged in principal activities.  As Mr Knight put it in his submissions: if the statutory employees are in scope then so is Hudson’s directly employed workforce. 
 The 2015 Order
16.	The 2015 Order was made under s. 11(2) of the 1982 Act. 
17.	Article 3 of the 2015 Order provides, consistently with the 1982 Act, that the levy is to be imposed upon “employers in the construction industry.”  The 2015 Order had three levy periods.  The first running from 11 to 31 March 2015, with a base period of 12 months starting on 6 April 2013.  The second period ran from 1 January to 31 March 2016, with a base period of 12 months starting from April 2014.   This appeal concerns only the third of the levy periods set out in the Order, that commencing on 1 January 2017 and ending with 31 March 2017 with a base period of 12 months starting 6 April 2015.  During that, third, levy period, the calculation mechanism is materially different to that applying in the first and second periods (and indeed in earlier levy periods – see below, paragraph 22).
18.	Article 5 introduces the concept of a construction establishment:
(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.
(3)	….
(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.
19.	Article 7 then prescribes the method of assessment of the amount of the levy.  Only the third period is in issue before me.  Article 7(2) sets out that:
(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
Where 
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
20.	I take the levy history largely from the agreed statement of facts which was before the Employment Tribunal.
21.	From at least 1982 until the second period of the 2015 Levy Order, the calculation of the levy payable by an employer included a “labour only offset.”  The effect of this was that payments made under labour only agreements in respect of work carried out at or from a construction establishment during the base period, where the employer had received the same sum from another employer in the construction industry under a labour only agreement, could be offset against any payments made to employees under labour only agreements or as emoluments to employees.  The effect was that, given that the payments Hudson received from employers vastly exceeded its own payments to direct employees, no levy was payable.  
22.	However, the calculation of the levy changed for the third period in the 2015 Order; the labour only offset was no longer applied.  Levy was calculated on the basis of all contract payments made by the employer (where contract payments refer to the Construction Industry Scheme (“CIS”) in the Finance Act 2004, whereby tax is deducted from payments to self-employed contractors, and paid to the Revenue to be held on account of tax liability). 
23.	Prior to the 2015 Order, Hudson had never registered with the Board and had never been asked by the Board to register.  Hudson had never been assessed as being liable to the levy.
24.	Hudson submitted a levy return on 19 December 2016 in which it stated that it did not have any construction establishments.
25.	On 7 March 2017, the Board issued Hudson with an assessment to the levy in the sum of £7,964,584.  Given the “nil return” from Hudson, the Board estimated the levy figure at 0.5% of the payments to employees on the payroll (the PAYE employees, or the directly employed workforce) and at 1.25% on the net paid (CIS taxable) operatives.  Hudson’s appeal before the Employment Tribunal was against the assessment in principle but not, subject to that issue, to the quantum of the levy.
26.	This litigation is not the first challenge by Hudson arising from the 2015 Order.  In R (on the application of Hudson Contract Services Ltd) v The Secretary of State for Business, Innovation and Skills and The Construction Industry Training Board [2016] EWHC 844 (Admin) Kerr J ruled on Hudson’s challenge to the lawfulness of the 2015 Order on the grounds that it was ultra vires, unfair and unlawful.  I note in passing that, for the purpose of the judicial review, Hudson accepted that it was “in the construction industry,” but it is accepted that that concession is of no relevance to my decision in this appeal.  
27.	The focus of the application for judicial review (“Hudson 1”) was to Article 7(2) which set the new formula for calculating the levy due in the third period. In rejecting the challenge, Kerr J observed that:
(1)	at [97] 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 [106]-[107] 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 [108]-[109] 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 [111] 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.  
The Issues
28.	It is common ground between the parties that, in order for a levy to be payable, the Order requires that (a) the person or body must be an “employer in the construction industry” (see Article 3(1)); and (b) that “employer” must have a “construction establishment” which is “engaged wholly or mainly in the construction industry” (see Article 5(1) and 5(2)); and (c) the construction establishment must be an establishment “at or from” which construction activities are carried on (see Article 5(4) and Article 7).  The central focus of the challenge is upon the meaning of Article 3(1) and Article 5(1) and 5(2): Hudson denies that it is liable to levy as an employer in the construction industry and it denies that its head office in Bridlington is a construction establishment to be assessed for the purposes of the levy assessment.
29.	My approach to the exercise of statutory interpretation was not, as it turned out and contrary to Mr Maugham’s worst fears, particularly contentious. Both parties helpfully provided me with short notes to guide my approach.  Although Mr Maugham and Mr Knight chose to emphasise different points, there was a consensus that I should adopt the following analysis:
(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”?
30.	The Employment Tribunal found that Hudson was an employer in the construction industry for two linked reasons: first, because what an employer does is to be determined by what its employees do and, second, because employees are defined in the 1982 Act to include self-employed contractors as well as directly employed employees.  On this basis, it found that the question of whether Hudson is an employer in the construction industry falls to be determined not just by what the Bridlington team do, but by reference to what the many thousands of self-employed operatives do.  Those self- employed operatives are in the construction industry and so, the Tribunal found, Hudson is also in the construction industry. 
Hudson’s Submissions
31.	Mr Maugham made the following points:
(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.  
32.	Viewed by reference to the Scope Order, Hudson’s activities are not construction activities.  The activities which Hudson performs at its head office are related activities and so only construction industry activities if they are incidental or ancillary to principal activities of the construction industry and carried out in either case by the employer engaged in those principal activities.  Hudson itself does not have any principal activities to which its related activities can be said to be ancillary.  It follows that it does not have any activities within the construction industry.
33.	Mr Maugham submits that on a purely statutory construction exercise, therefore the question of whether a business is in the construction industry is answered by reference to what “it”, that is, the business and its directly employed workforce, do.  This is also the logical and rational outcome: any other would be absurd.  The character of a business is a function of what it, the business, does and not what its self-employed contractors do.  For example, an employment agency is in the employment agency business and not in the business of the clients to whom it may introduce personnel.  Hudson is in the business of compliance risk and payroll, or in the insurance or risk assumption business.  It just so happens that its clients are in the construction business but Hudson could provide the same purely administrative service to any industry from any part of the world.  The outcome is also consistent with the underlying legislative purpose of the wider definition of employee and employer which is to define the area of interest of the Board which exists to provide training for everyone in the construction industry, not just common law employees but the broader definition of employer is not intended to constrain the construction of the provision in such a way as to lead to an absurd result.
34.	Mr Maugham also makes two subsidiary points.  First, he draws a comparison with the terms of the scope order for a different industry training board, that of the Engineering Construction Industry Board: the Industrial Training (Engineering Construction Board) Order 1991 (SI 1991/1305).  He draws my attention to a provision in that Order by which the “hiring out by an employer of individuals in his employment to persons engaged in any of the foregoing activities, where the said individuals are to be employed in such activities” is expressly included as a principal activity.  Mr Maugham’s point here is that, if the Board’s interpretation of whether an employer is in the construction industry is correct, then this provision is otiose as the same effect is achieved by the extended definition of “employee” in section 1(2) of the 1982 Act.  His second subsidiary point relies upon the analysis of the necessary ingredients of an employment or quasi employment relationship sufficient to give rise to vicarious liability in Cox v Ministry of Justice [2016] UKSC 10. His short point is that adopting that analysis Hudson would not be vicariously liable for the tortious acts or omissions of the self-employed operatives, notwithstanding the contractual relationship between Hudson and those operatives. 
35.	Mr Maugham submits that the test of whether or not an organisation or person is in the construction industry involves a multifactorial assessment.  By this, I understand him to mean that it involves at least in part a factual inquiry combined with an evaluative judgement.  He does not spell out the ingredients of that multifactorial assessment but submits that if such an exercise is undertaken then it would yield only one conclusion which is that Hudson was not in the construction industry. 
The Board’s Submissions 
36.	Mr Knight submits that the Tribunal reached the right conclusion for the right reasons.  His submissions on Article 3(1) are in summary:
(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?
37.	The Tribunal found that Hudson’s head office in Bridlington was a construction establishment wholly or mainly in the construction industry and that construction activities took place “at or from” that head office.  At [87] it found no difficulty with the concept of employees working “from” premises where no construction activities took place.  It drew on its collective experience as an employment tribunal, saying “it is not hard to think of such examples.  Cleaning companies are one – cleaners are based at the premises they clean, in small operations there is no on-site supervision, and they may be employed by an employer they have never seen…in whose office no one works.”  It concluded “If the employer is an employer in the industry because he does what his employees do, and they are all cleaners and he has only one establishment, he has a cleaning establishment from which his employees work.”  
Hudson’s Submissions
38.	Mr Maugham accepts that, in principle, a head office could be a construction establishment.     However, all employers will have some form of administration hub which holds and processes contractual and other documentation; if that were all that was needed for a levy to be payable then the concept of a construction establishment would be redundant.  There are two further issues therefore: first whether the establishment is a construction establishment by reference to the establishment’s activities (“qua establishment” rather than “qua statutory employees.”) and second whether Hudson’s Bridlington head office is an establishment from which construction activities take place.  This second issue is a question of fact.  
39.	He submits that on a factual analysis, it is not correct to conclude that construction activities take place from the Bridlington head-office.  Operatives are not despatched or supervised or controlled from Bridlington; construction work is not supervised or directed or controlled from Bridlington; those in Hudson’s head office do not even know what construction work is taking place at the time when that work is done; the contracts which Hudson enters into are signed at the client’s premises and are for the engagement of labour rather than contracts for construction projects; those contracts are then sent to Hudson only for record keeping and storage purposes.  Against this factual background, he submits that it cannot be sensibly suggested that construction activities take place from the Bridlington head-office.  Although the Employment Tribunal engaged in part in considering the factual question posed by a proper construction of Article 5, the Tribunal reasoning expressed no concluded view on the point.  In the circumstances, Mr Maugham proposes that one option which is open to me is to remit the matter back to the Employment Tribunal for a further analysis of and ruling on the point. 
40.	Mr Maugham submits that if a head office such as Hudson’s Bridlington office is a construction establishment then it opens the floodgates to tax avoidance.  If the only necessary nexus between a construction establishment and construction activities is such matters as storage of records then all that organisations need do is locate their head office in a “levy-free” zone, such as an enterprise zone or overseas.  This offends against the strong presumption against tax avoidance or evasion.  The fact that there is or may be no evidence of such evasion activity thus far is irrelevant to the question of statutory construction.
41.	Finally, Mr Maugham relies upon Article 5(4) of the 2015 Order: “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 or at or from that establishment during the relevant period.” This provision, he says provides the “complete answer” to the Board’s construction of the relevant provisions. The provision contemplates an employee having only one employer.  However, if Hudson’s headquarters is to be treated as a construction establishment, then the effect of this provision is that a single operative may have two employers (Hudson and the client).  This is illogical.  It also follows that there are two employers, both of which are liable to levy in respect of the same work.  This is, Mr Maugham submits counterintuitive.  There is only one contract payment to each employee so the notion that there can be two liabilities does not withstand scrutiny.  That two people may be liable to pay a levy in respect of a single contract payment offends against Article 5(4) and Article 7(2). 
The Board’s Submissions
42.	Mr Knight submits that the concept of construction establishment is relevant to the assessment of the levy.  As such, it is secondary to the concept of employer in the construction industry which is the prerequisite to liability to levy.  If the employer has either no construction establishment or no construction establishment engaged wholly or mainly in the industry, an employer in the industry may nonetheless escape levy.  To that extent, he accepts that the concept is important, because it provides the only direct basis by which an employer in the construction industry can nonetheless escape levy.  The words “wholly or mainly in the construction industry” are therefore, as the Tribunal recorded, intended to deal with those employers who have a mixed workforce: some in the construction industry and others not.  If an employer in the construction industry has a mixed workforce of which those in the construction industry are in the minority then that employer will not have a construction establishment liable to levy. 
43.	His approach is guided by the (now elderly) cases of Norwich Union Insurance Societies v Construction Industry Training Board (1966) 1 ITR 355 and those therein referenced at [358], in particular Maple & Co Ltd v Construction Industry Training Board  (1966) 1 ITR 229.  Norwich Union is, and was, an insurance company with a head office in Norwich.  The head office comprised a complex of 11 buildings adjoining or near adjoining one another.  One of those buildings was the company’s maintenance department which consisted of painters, plumbers, and builders.  The Board assessed that maintenance department for levy.  The subject matter of the appeal was whether the department was a separate establishment.  If it was, then it was a construction establishment engaged wholly or mainly in the construction industry.  If it was not a separate establishment but should be regarded as part of the insurance office establishment then it was not wholly or mainly in the construction industry.  In Norwich Union, the Tribunal set out a list of 6 non-exhaustive factors to assist in determining whether, in the context of a complex of offices, an employer in the construction industry had a separate construction establishment or had a separate establishment wholly or  mainly in the construction industry.  It found, applying those factors that the maintenance department was not a “separate house of business or commercial organisation.”  Mr Knight’s point is that this is an example of the importance of the application of the concept of construction establishment in practice, which can in some circumstances remove from levy a person or organisation which is nonetheless an employer in the construction industry.   He submits that the Tribunal was therefore correct in its approach to the purpose of the concept of construction establishment which is only needed if there is a “mix” (of employees) to “decide where the levy bites.”    As Mr Knight put it, it is the answer to the “hard cases” which assists in deciding whether an employer who has some employees in the construction industry but only a minority.  
44.	Whether or not a construction establishment is wholly or mainly in the industry is to be determined by what its employees do (subject to the question of “at or from” the establishment). Just as an employer acts through its employees, so does a construction establishment.  This is a question of common sense.  However, he relies on R (on the application of Bobcat Plant Hire (UK) Ltd v Construction Industry Training Board [2003] EWHC 2383 (Admin), a decision of Nicholas Blake QC sitting as a Deputy High Court Judge in which the Court determined that the issue of whether an establishment is wholly or mainly in the construction industry is to be answered by what its employees did rather than turnover relevant to the different elements of the business.  Applying this test, Mr Knight submits there can be no doubt that Hudson’s head office is wholly or mainly in the construction industry.
45.	Mr Knight agrees that no construction activities take place at Bridlington so the only issue is whether construction activities take place “from” the Bridlington head office.  He submits that the test is whether or not there is a sufficient connection between the employee, what the employee is doing and the establishment.  He submits that the test is met, and comfortably so, on the Hudson facts.   The Tribunal found as facts that: Hudson contracts with the operatives; the contracts are sent to Bridlington; Hudson pays the operative with the relevant tax deductions.  Although the contracts are entered into at the client’s premises and the client and not Hudson is present, the client is at all times acting as Hudson’s agent.  Those facts are sufficient to establish the nexus.  He disputes that the Tribunal failed to resolve the issue sufficiently.  It drew analogies with other cases with which, using its industrial expertise, it was familiar.  The Tribunal’s conclusion and its reasoning is clear.    
46.	Mr Knight did not accept that his construction of Article 5 might open the floodgate to tax avoidance.  Kerr J found in Hudson 1 that the reformulation of the levy calculation had broad industry support.  The consultation process and the three-year levy cycle allows for swift action if for some reason organisations such as Hudson (or others) decamped to foreign jurisdictions or to enterprise zones.  Even within the context of tax legislation, as the Tribunal accepted, it is not unknown for organisations to structure themselves in a tax efficient way.
47.	Article 5(4) does not provide a complete “answer” or rebuttal to his case that Hudson’s head office is a construction establishment.  He makes the following points:
(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
48.	When distilled down, the issues between the parties on this point are relatively narrow.  
49.	The main point of dispute between Mr Maugham and Mr Knight on the “employer in the construction industry” question drills down to whether, in construing the provision, I should take into account the statutory employees and their activities or not. It was agreed between the parties that if the question of whether an employer is in the construction industry is to be determined by reference to its entire workforce, including its statutory employees, then Hudson is in the construction industry.  Likewise, Mr Knight accepted that if the statutory employees formed no part of the picture then Hudson was not in the construction industry.  
50.	Mr Maugham makes two linked submissions in respect of the construction of Article 3(1): first that the interpretation of the phrase “employer in the construction industry” must be approached in a granular way in which the concept of “in the construction industry” is divorced from its immediate context and considered separately from the concept of “employer.”  Second that even if the phrase is to be construed as a composite (as Mr Knight submits) then in the context of Article 3(1) employer should not bear its statutory definition. I am against him on both points.  
51.	Mr Maugham’s submission that the phrase “employer in the construction industry” should not be interpreted as a phrase is linguistically strained and artificial.  It also ignores the significance of the draftsman’s use of the word “employer” rather than one of the many more neutral alternatives (such as business, organisation, entity) which he could have used.   Although Mr Maugham submits that there is no definition of “employer in the construction industry” and that both concepts are defined separately, this argument does not assist him, nor does it follow that the concepts are legally and factually separate.  The reason for the separate definitions is, as Mr Knight has said, because the 1982 Act (in which the definition of employee and employer are to be found) covers the full range of industrial training boards of which the construction industry training board was only one.  It follows that the concepts must be defined separately in different pieces of legislation.
52.	The use of the word “employer” in Article 3 is critical to unlocking the proper construction of the provision in a further way. Not only does the use of the word inform the question of whether an entity is in the construction industry, it also answers the question of whether, for the purpose of determining whether an employer is in the construction industry, the statutory employees are to be taken into account.  Mr Maugham’s submission that the word employer in Article 3(1) should not bear its extended statutory meaning is, with respect to his eloquence, a non-starter. If it had been intended that the word should be confined to only those who are directly employed, then this would have been made clear in Article 3.  It is not.  In contrast, where the Act permits approaching the levy by reference to something other than the statutory employees it says so specifically: see section 12(2).  Where the draftsman has chosen to focus on the nature of the employer, not necessarily by reference to employees, then specific provision is made for it. On a natural and plain reading of the provision therefore I find that whether or not an employer is in the industry is coloured by its status as an employer of (where relevant) both statutory and non-statutory employees.
53.	What an employer does is to be answered by what its employees do.  This is straightforward.  Mr Maugham does not dispute the point.  In fact, he positively asserts this to be the correct approach to the construction of the provision.  His argument, that for the purposes of defining what Hudson does, only the directly employed workforce should be brought into account and considered makes no sense in a legislative scheme which provides an extended definition of employee and employer.  
54.	It follows from my analysis that what Hudson does is to be answered not just by what the directly employed workforce do, but by what its 20,000 or more statutory employees do.  As the Tribunal found, they are in the construction industry and therefore so is Hudson.  This conclusion creates no tension between the wording of Article 3(1) and Article 5(2) (Mr Maugham’s new point).  Article 5(2) maintains the concept of an employer in the construction industry.  It defines a construction establishment (of an employer in the construction industry) as one which is wholly or mainly in the construction industry.  For the reasons which I set out below in more detail, whether or not an establishment is wholly or mainly in the industry is answered by looking at what the employees, both common law and statutory, do at or from the establishment.   
55.	I do not find this conclusion to be illogical, counter-intuitive, irrational or absurd as Mr Maugham suggests. There are more ways of being in the construction industry than wielding a pickaxe or donning a high visibility jacket or by directing or supervising or controlling those engaged in the physical side of the industry. The employment contract is between Hudson and the operative.  It is Hudson who pays the operative (having received cleared funds from the client).  At a most basic level, Hudson’s profits are derived from the construction industry. Mr Maugham reminds me of Kerr J’s observation that Hudson provided “services to employers in the construction” industry (at [2]). I however do not have a difficulty with Hudson providing both a service to the construction industry and also being in the construction industry: the concepts are not mutually exclusive.  Further, the construction is consistent with the purpose of the Board and the purpose of the levy which is for the better provision of training of persons for employment in the relevant industry as a whole, not just those who are directly employed, but everyone who is engaged in the construction industry and, as Kerr J identified, Hudson benefits from the existence of a large pool of appropriately trained operatives, just as does its clients. 
56.	I deal finally with Mr Maugham’s two subsidiary points.  I can take them shortly.  First, the secondary legislation relating to the Engineering Construction Industry Training Board.  Given that I do not find that a linguistic interpretation of Article 3(1) is ambiguous, like the Tribunal, I am not persuaded that it is necessary to consider this secondary legislation.  However, even it if is necessary to do so, this is an area in which I find that I can and should defer to the expertise of the Tribunal.  It found that it did not know (and counsel could not tell them) why the hiring out of individuals had been added to the activities of engineering construction.  It raised the possibility that it might have been a response to levy avoidance or some other development in that industry.  The Tribunal stated that “we know from experience that different industries operate different patterns of employment and that such patterns can sometime be seen to have changed over time in response to practical or financial accounting or regulatory situations.”  As Mr Knight submitted, the Engineering Order is a different order made at a different time in relation to a different industry.  As such, it is impossible to reverse engineer the meaning of the primary legislation from the subsidiary legislation.  Nor do I find that the authority of Cox comes to the assistance of Hudson.  The critical difference between the relationship between the operatives and Hudson and those relationships considered in Cox is that the operatives are Hudson’s statutory employees.  I do not accept that, depending on the particular facts and circumstances, Hudson would not be vicariously liable for the negligent acts and omissions of the operatives and note in this context that such potential liability is catered for by a clause in the contract between Hudson and the client, which obliges the client to indemnify Hudson in the event of a finding of vicarious liability.  This point, like the Engineering Construction Industry Training Board point, does not advance Hudson’s position. 
b) The Construction Establishment Issue
57.	Having found that Hudson is an employer in the construction industry, Hudson is liable to levy.  It has, to use Mr Maugham’s language, passed through the first gateway.  The second gateway is whether Hudson has a construction establishment from which construction activities take place and which is wholly or mainly in the construction industry.  Again the issues, as they were resolved during argument, are relatively narrow.  
58.	On paper, the importance and purpose of a construction establishment appeared to be contentious, not least because in his skeleton argument Mr Knight referred to the concept of a construction establishment as being a “secondary concept” and part only of the machinery by which the levy is assessed.  Mr Knight however has clarified his position.  Although it is a necessary precondition to levy that the employer must be in the construction industry, the levy is assessed by reference to construction establishments (one or more).  The concept can however remove from liability to levy an employer in the construction industry who either does not have a construction establishment or who has a construction establishment which is not “wholly or mainly” in the construction industry.  The concept accommodates the situation in which an employer in the construction industry has a mixed workforce in which construction employees are in the minority.  As the Tribunal put it “the purpose of assessing levy by reference to construction establishments is to cover employers in the industry who are also employers outside the industry”.  It can remove from levy employers who employ only a minority of construction workers.  The concept of a construction establishment remains however part of the assessment machinery: the amount of the levy is to be paid in respect of each construction establishment (Article 5(1)) and the Board and an employer may agree that two or more construction establishments are to be treated as one for the purposes of the assessment.  Save in situations in which the workforce is mixed or in which the majority of employees are in the construction industry, the concept will only be relevant to the levy assessment.  
59.	Given that Mr Maugham accepts that a head office could be a construction establishment, the first issue therefore is whether the Bridlington head office is wholly or mainly in the construction industry.  Mr Maugham submits that this question is to be answered by reference to the head office itself, rather than by reference to its employees (“qua establishment rather than qua employees” as he frames the point).     His submission amounts to the proposition that on a proper construction I should answer the question of what Bridlington does by reference only to its directly employed workforce.  I reject this point.  Just as an employer does what its employees do, so a construction establishment is a function of what its employees do.  Within the context of this legislative scheme that includes the many thousands of statutory employees.  I accept Mr Knight’s submission that Bobcat is directly on point.  Nicholas Blake QC had before him two competing approaches to whether Bobcat was in the construction industry: one “the turnover approach,” the other the “activities approach” (which involves counting how many employees were working in construction, as opposed to non-construction, activities or what proportion of time of those employees was engaged in such activities).  The Court found that the Board had been right to adopt the activities approach to the question of apportionment and assessment of companies that did a variety of operations, some within and some without the scope of the Board.  Although Mr Maugham analysed the figures to suggest that all of Bobcat’s employees are directly employed (PAYE) employees, there is nothing in the point.   The judgment does not suggest that the answer to the question would have been any different if Bobcat had engaged a mixture of directly employed and statutory employees.  There is no reason why, for the purpose of considering what an establishment does, statutory employees should be left out of account.  I therefore find that Hudson’s head office is engaged wholly or mainly in the construction industry.   
60.	I sense that the real battleground between the parties is whether construction activities take place “at or from” Bridlington (see Article 5(4) and Article 7).  There is no suggestion that construction work is carried out at Bridlington. The question is whether construction work is carried out “from” Bridlington.  Mr Maugham submits that this is a question of fact and I agree with him.  The scheme does not provide any guidance as to how the question is to be answered but common sense would suggest the need for some sufficient connection between the employee, the employee’s activity and the establishment.  Mr Maugham submits that, when the role of Hudson and the nature of its business are analysed there is no sufficient connection.  Mr Knight submits that the connection is more than comfortably made out.  Mr Maugham also submits that I am bound by the factual findings of the Tribunal and on this topic, their conclusions are not fully realised and I should remit the issue back for the Tribunal to deal with properly.
61.	I have no difficulty in concluding that for the purposes of the 2015 Order, there is a sufficient connection between Hudson’s head office and the statutory employees and their activities.  The relevant facts are those which were available to the Tribunal.  First, the contract is between Hudson and the employee.  To fact that the contract is signed at the client’s offices is irrelevant; the client is acting as Hudson’s agent.  The operative is informed in clear terms that there is no contractual relationship between the client and him and that his contract is with Hudson.  The operative is told that Hudson steps into the shoes of the client.  Hudson knows the name of the operative and his trade and the client company, site address and client representative. The operative is paid by Hudson from the Bridlington head office, subject to Hudson deducting the appropriate tax figure.  Hudson’s operations are conducted from its head office; if status issues arise (in respect of which Hudson is liable) those issues will be handled from the Bridlington head office.  These connecting elements are sufficient to meet the test.  
62.	The Tribunal addressed the question and answered it sufficiently.  Although the judgment does not include the punchline “therefore we find that Hudson’s operatives are employed from the Bridlington head office”, it is abundantly clear that this was its conclusion.  It grappled with the issue of whether employees could work from an establishment where no construction activity took place and by the analogy which it used (that of the cleaners based at the premises they clean) covered the issues of absence of direction and supervision, employment by an employer who the operative had not met or seen, and an employer with an office at which no one may actually work save for the director.  By its analogy with the world of management consultancy, the Tribunal recognised that establishment does not necessarily connote a location or building but can refer to an organisation in a broader general sense.  I do not therefore remit the case back to the Tribunal for further analysis.
63.	I deal finally with the two further points raised by Mr Maugham.  They are the potential for tax avoidance if the Board’s submission on the meaning of construction establishment were accepted and the wording of Article 5(4) which Mr Maugham submits provides the complete answer to the Board’s submissions. 
64.	I deal first therefore with the potential for wholesale tax avoidance by organisations (such as Hudson) relocating their offices offshore or into enterprise zones and so avoiding the levy.  I accept that it is possible that organisations may choose to manage their businesses in a way which is likely to minimise taxation and may do so, lawfully, in a variety of ways.  However, this does not undermine my conclusion that Hudson’s Bridlington head office is a construction establishment.  First, as Mr Knight submits, the risk of such avoidance is inherent in head offices being capable of being construction establishments. Mr Maugham accepts that a head office can be a construction establishment; that a head office could be a construction establishment is clear from the Norwich Union case.  Second, the levy cycle is three years.  If therefore tax avoidance strategies were implemented, the short cycle would allow for action to be taken by the legislator in the next cycle Order.  Third, as was made clear to Kerr J (and as he accepted) there is widespread support within the industry as a whole for a rationalisation of the levy system which has historically favoured some in the chain of contract payments over others.
65.	Finally, I consider Article 5(4).  I do not find it to be the knock-out blow which Mr Maugham suggests it is. The provision deals with the situation in which there is a change of ownership of (or responsibility for) a construction establishment during the relevant levy period.   It answers the question of who is responsible for paying the levy.  Is it the old owner, the new owner or is it a shared liability?  It answers the question by stating that it is the old owner who remains liable: that is, the person or organisation which owned or was responsible for the construction establishment on the first day of the levy period.  Mr Maugham submits that the provision contemplates only one employer (it refers to “the employer”).  However, on the Board’s case there will be two employers: the client (who is responsible for a construction establishment) and also Hudson, a conclusion which he describes as “powerfully counterintuitive” and wrong in law.  I disagree with his construction of the provision.  The focus in Article 5(4) (or the lens through which the provision should be viewed, to adopt Mr Knight’s language) is that of the construction establishment.  Article 5(4) provides that, in respect of each construction establishment, there can only be one employer per relevant levy period (rather than more than one: the old and the new owner).  This is not the same as suggesting that during the relevant levy period an employee may only have one employer, which would make little sense in the context of the working habits of construction workers who may well (more often than not) work for more than one employer within a levy period. 
66.	Mr Maugham’s final point is the possibility that a levy could be raised against both Hudson and its clients in respect of the same work, an outcome which militates against the levy rate of only 1.25% per single payment in Article 7(2).  Again, I reject this point.  There is no single payment.  There are, in fact, two payments: one from the client to Hudson and the other from Hudson to the operative net of tax deductions.  As Kerr J found, each of those payments is, liable to levy depending on the CIS status of the parties in the contractual chain.  Mr Knight does not dispute that, depending upon the tax status of those in the chain of payments, there may be multiple employers liable to levy in relation to the same work (or, indeed, no levy payable).  Kerr J found that there was nothing unlawful about “double recovery” as he framed it; overlaps in tax liabilities are not unknown in other fields.  However, no single employer in the industry is levied twice in respect of the same payment.
Conclusion
67.	I dismiss the appeal.