Heis & Ors v MF Global UK Services Ltd

A contract may be implied from the parties’ conduct where this is necessary to give business reality to their arrangements and to create enforceable obligations which the circumstances reasonably require. In determining whether such a contract exists, the court considers the dealings as a whole; a conventional offer-and-acceptance analysis may be difficult but is not indispensable.

Where a service company employs staff seconded to an operating company and is reimbursed for employment costs without a mark-up, a proper construction of the reimbursement obligation may include liabilities arising from the staff’s pension arrangements. A statutory pension deficit debt may constitute a cost relating to the pensions of seconded staff, even though the legislation describes it as a debt rather than a contribution.

The administrators of MF Global UK Limited, which was in special administration, applied for determination of whether it was obliged to indemnify MF Global UK Services Limited for a debt arising under section 75 of the Pensions Act 1995.

Services employed the relevant staff and seconded most of them, including pension-scheme members, to MF Global UK. The companies had no express agreement governing their direct relationship. Services’ employment costs were routinely reimbursed by MF Global UK, and MF Global UK also made pension deficit payments directly to the trustees. The issue was whether those arrangements created an implied contract and, if so, whether its terms covered the section 75 debt.

1. Implied contract. The application was determined in favour of Services. Applying the approach in The Elli 2 [1985] Lloyd’s LR 107 and Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195, the court held that contracts should not be lightly implied, but that the parties’ conduct must be assessed as a whole. Here, MF Global UK was not making the payments gratuitously. The direct dealings between Services and MF Global UK made it overwhelmingly likely that they intended to create legal relations.
2. Services had offered staff to MF Global UK on terms that MF Global UK would bear the associated employment costs, and MF Global UK had accepted those terms through its conduct. There was no need to treat Holdings Europe as an intermediary merely because it had entered into the wider Services Agreement.
3. The reimbursement obligation in clause 3 of the Services Agreement covered the section 75 debt. The phrase “pension contributions” appeared within a broad definition of payroll costs, which included all costs relating to seconded staff and contractual or discretionary benefits. A section 75 debt was a cost relating to the pensions of the seconded employees. The distinction between a statutory debt and a pension contribution was therefore too narrow in this context.
4. The commercial background reinforced that construction. Services had no trading activity, charged costs to group companies at cost, and had no realistic means of meeting a section 75 debt without funding from MF Global UK. It was legitimate to take that background into account when construing the Services Agreement.
5. It was unnecessary to decide whether the contract inferred from conduct would independently have required the same indemnity. The court nevertheless stated that, absent a contrary agreement, such a contract would have been understood as requiring MF Global UK to indemnify Services against all costs incurred as employer of the seconded staff. A declaration was made that MF Global UK was obliged to indemnify Services in respect of its section 75 debt.