The Construction Industry Training Board (aka CITB-Construction Skills) v Beacon Roofing Ltd

For a statutory levy calculated by reference to the main purpose of a labour-only agreement, purpose is an objective question. It is determined primarily from the agreement’s terms, read against relevant background, rather than from the subjective reasons or intentions of either party. A party’s reason for replacing an earlier arrangement may differ from the essential purpose of the new contract. Where the contract’s principal function is to make workers available to the business, ancillary payroll, tax and employment-administration services do not displace that labour-supply purpose. The fact that those ancillary services motivated the arrangement, or were separately charged, is not decisive.

Beacon Roofing Ltd had traditionally engaged roofing operatives as self-employed subcontractors. In 2007 it contracted with Hudson Contract Services Ltd, which formally engaged the operatives and supplied their services to Beacon while undertaking payroll, tax and related administrative obligations.

The Construction Industry Training Board assessed Beacon for a levy under the Industrial Training Levy (Construction Industry Training Board) Order 2009. The employment tribunal allowed Beacon’s appeal. On the Board’s appeal under section 11(1) of the Tribunals and Inquiries Act 1992, Keith J held that the tribunal had erred in law and upheld the levy. The central issue was whether the main purpose of the Hudson contract was objectively the provision of labour or subjectively the assumption of administrative obligations.

Disposition. Longmore LJ gave the leading judgment. Rimer LJ and Warren J agreed. The appeal was dismissed, and the High Court was correct to uphold the levy assessment.

1. Statutory issue. Article 8(1)B of the Industrial Training Levy (Construction Industry Training Board) Order 2009 required a levy at 1.5% of payments made under a labour-only agreement. Under article 2(1)(h), the question was the sole or main purpose of the agreement under which Beacon paid for Hudson’s services.
2. Meaning of purpose. The purpose of a bilateral contract cannot be equated with the reasons why one party, or both parties, entered into it. The parties may have different or opposing reasons. The tribunal therefore erred by asking why Beacon had made the contract. The judgment in Re Nicholson & Son’s Application [1931] 2 Ch. 157 supported caution against treating purpose as invariably synonymous with reason or intention.
3. Objective inquiry. The purpose of the contract had to be determined objectively, primarily from its terms and against any relevant background. The previous direct-engagement arrangement explained why the new contract was made, but did not necessarily determine its essential purpose. The tax authorities, including IRC v Brebner [1967] 2 AC 18, were distinguishable because the relevant tax provision required inquiry into the taxpayer’s state of mind, whereas the 2009 Order required an objective contractual inquiry.
4. Application. The contract’s main purpose was to make roofing operatives available to Beacon so that it could perform its construction business. Hudson’s payroll, tax, National Insurance and status-related services were ancillary. Their importance in motivating the arrangement, and the separate £15 fee, did not displace the principal labour-supply purpose. The full payments made for the operatives’ services therefore fell within the levy provision.
5. Appellate correction. Because the tribunal had asked the wrong statutory question, its findings directed to that question were not decisive. Keith J was entitled, and required, to answer the correct question from the tribunal’s primary findings, and the conclusion he reached was the only one properly open.

The appeal was dismissed. Any objection to the respondent’s costs schedule was to be made by written submissions before hand-down.

• Court of Appeal (Civil Division). In [2011] EWCA Civ 1203, the court dismissed Beacon’s appeal.
• High Court, Administrative Court. Keith J held that the employment tribunal had erred in law and upheld the levy assessment.
• Employment Tribunal. The tribunal allowed Beacon’s appeal and held that no levy was payable for the operatives supplied through Hudson.