Heis & Ors v MF Global UK Services Ltd

A contract may be inferred from conduct where the parties agreed sufficiently certain essentials, intended legal relations and provided consideration. The party asserting the contract must show that its implication is necessary after considering all the circumstances, especially the parties’ conduct.

A direct contract may arise between substantial, well-advised companies within the same corporate group despite the absence of a written agreement. A consistent course of supplying staff and reimbursing every associated cost may establish the necessary contractual foundation. A broadly expressed obligation to meet all employment and pension costs can include a debt arising under section 75 of the Pensions Act 1995.

The appellants were the administrators of an operating company which used staff employed by the respondent service company. Both companies belonged to the same corporate group. Although the service company had an express agreement with their parent company, there was no express agreement between the operating and service companies.

David Richards J held that an implied contract required the operating company to reimburse the service company for all costs associated with the seconded employees. Those costs included a debt of about £35.2 million arising under section 75 of the Pensions Act 1995, of which approximately £7 million remained disputed.

The operating company appealed. With the Court of Appeal’s permission, it withdrew a concession made below and contended that no contract should be inferred because the companies might have acted identically without one. The central issues were whether a contract should be inferred from their conduct and, if so, whether it covered the section 75 debt.

1. Appeal dismissed. The operating company was permitted to withdraw its concession and amend its grounds of appeal. The concession had diverted the first-instance hearing from whether any implied contract existed to the identity of the contracting counterparty. The evidence was entirely documentary, the respondent had an adequate opportunity to address the revised case, and no material prejudice was established: paras 24–32.

2. A contract inferred from conduct requires agreement on enforceable essentials, an intention to create legal relations and consideration. The party asserting the contract must demonstrate the necessity for its implication. The authorities supply guidance rather than prescriptive rules: the decisive exercise is an assessment of all the circumstances, particularly the parties’ conduct. The court must be confident that legal relations were intended and that the agreement had the terms asserted: para 36.

3. The parties’ arrangement was sufficiently certain. Their documents and the evidence of a common director demonstrated a consistent understanding that the operating company would meet every cost, including pension costs, incurred by the service company for the seconded staff. The ordinary arrangement involved pound-for-pound recharges, while pension deficits were sometimes paid directly: paras 38–45.

4. The relationship was explicable only on a contractual basis. The companies’ sophistication, common ownership and failure to record their direct obligations in writing were important but not decisive. An annual entitlement of approximately US$330 million could not realistically have been left to a non-contractual understanding. The verified statement of affairs and the absence of any contemporaneous suggestion that the operating company lacked legal responsibility reinforced that conclusion. The parties therefore intended a binding arrangement: paras 46–47.

5. The implied contract covered the debt arising under section 75 of the Pensions Act 1995. The express services agreement with the parent company treated all salary and contractual or discretionary benefits during an assignment as recoverable costs. The staff remained seconded immediately before the service company entered administration, when the statutory debt crystallised. It was common ground that inclusion of the debt within that agreement meant it was also covered by the implied contract: para 48.

Sales LJ and Gloster LJ agreed with Vos LJ: paras 51–52.

1. Court of Appeal (Civil Division): The court permitted withdrawal of the concession and amendment of the grounds, reconsidered the documentary evidence, upheld the finding of an implied contract covering the section 75 debt, and dismissed the appeal: [2016] EWCA Civ 569.

2. High Court, Chancery Division, Companies Court: David Richards J held that an implied contract existed between the operating and service companies and required reimbursement of all costs associated with seconded staff, including the section 75 debt. No citation is stated in the judgment.