First Personnel Services Ltd v Halfords Ltd

This case arises from a dispute relating to the arrangements, and their termination, for the supply of temporary workers by the claimant, First Personnel Services Limited (“FPS”), a recruitment agency specialising in the supply of temporary and permanent staff to industrial and retail clients, to Halfords Limited (“Halfords”), the well-known cycling and motoring retailer. FPS supplied such temporary workers (“Workers”), from the mid-1980s until December 2011. These services were provided subject to FPS’ terms and conditions (latterly dated 2010, “the Conditions”) for the supply of Workers; a copy of the Conditions is attached to FPS’ Particulars of Claim. At trial, it was common ground, subject only to the issue of whether certain of the Conditions had not been incorporated because they were “onerous and unusual” (a point which I consider later), that the parties had traded upon the Conditions.

During the years that the commercial relationship subsisted between the parties, there had been occasional discussion between them as to the rates at which Workers would be supplied by FPS. A point which was revisited particularly by the parties, over the years, was the issue of the basis for calculation of the employer’s National Insurance (“NI”) element of the charges which FPS made for its services; that topic was a focus of considerable attention whilst oral evidence was given during the trial. Particularly relevant to this case are the discussions and exchanges which took place in late 2005 and early 2006, late 2009 (when there was a retendering process for the supply of Workers to Halfords), and during 2011 (when there was a further such process).

It was the retendering process which was undertaken, during October and November 2011, that culminated in Halfords’ decision to award the contract for the supply of Workers to another agency, Staffline Group plc (“Staffline”). FPS was notified of this decision on 22^nd November 2011, with the original termination date set for 12^th December 2011. This original termination date, was, however, extended to 22^nd December 2011, from which date Staffline became Halfords’ provider of Workers rather than FPS. Both parties accept, and it is common ground between them, that these new arrangements gave rise to a service provision change (“the Change”) within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). By reason of the Change, most Workers who had been employed by FPS who had been supplied to Halfords were transferred over to Staffline.

FPS maintains that in the circumstances which have arisen, and pursuant to the Conditions, it is entitled to transfer or introduction fees. The basis upon which any such fees, if payable, are to be calculated is in contention, but on FPS’ case, they amount to £490,370.99, together with a further sum of £68,211.44 in respect of previously accrued unpaid trading invoices, and interest upon such sums, claimed at a rate of 2 per cent per month which is said to be the contractually applicable rate. Halfords disputes its liability to pay any transfer or introduction fees at all, and also, on the basis of its set-off, denies liability for the unpaid trading invoices. Halfords maintains that it is not liable to pay transfer or introduction fees because, it suggests, the Conditions do not apply to a transfer of Workers from one employment agency to another under a TUPE transfer; further, that if the Conditions do apply, then (i) they amount to unusual and onerous clauses that were not incorporated into the contract between the parties, (ii) they are unenforceable under Regulation 10 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“the Conduct Regulations”), (iii) they are void for uncertainty, and (iv) in any event, the maximum sum in respect of which fees would be due would amount only to approximately £21,000.

For its part, by its counterclaim, Halfords seeks to recover alleged overcharges in respect of holiday pay, holiday pay on overtime, and NI contributions, in relation to the latter of which a travel and subsistence scheme operated, in conjunction with HMRC, was in being. This counterclaim is pursued on the basis that, Halfords alleges, contrary to the arrangements made between the parties, FPS charged Halfords more than the actual costs incurred by FPS for those elements, and Halfords seeks to recover the difference between what was charged and the actual costs incurred by FPS. The assessment of the value of the counterclaim did not, as I shall explain later, form part of the trial with which this judgment is concerned. It is said to have a value in excess of £500,000. FPS denies all liability upon the counterclaim, because, it says, the parties had at all times agreed, and dealt, on the basis of composite rates, rather than rates calculated by reference to its actual costs plus some agreed margin.

FPS began these proceedings with a claim form issued on 7^th August 2014, and subsequently the particulars of claim were served. In response, Halfords served its defence and counterclaim, which was followed by FPS’ reply and defence to counterclaim. All of these pleadings were subsequently amended, in some cases more than once. Both parties requested further information of the other, which was duly provided. Directions with a view to preparing this case for trial were given on a number of occasions in 2014, 2015, and 2016. Extensive witness statements were served on behalf of both parties. It was originally listed for the trial to commence in the week beginning Monday 6^th, June 2016, but in anticipation of the need for further directions to be given, His Honour Judge Barker QC, sitting as a judge of the High Court, arranged for a further directions hearing in the week prior to the due date for the trial to begin. The case was then listed to be heard by me, but on the basis that I should first determine various issues which had arisen as to further amendment of Halfords’ pleadings, and other matters which were the subject of my ruling given on 9^th June, having heard extensive and detailed argument from counsel over the previous Tuesday and Wednesday. I made a consequential order, on 20^th June, having heard further submissions from counsel as to its precise form, and also having allowed, following still further argument, amendment to the Particulars of Claim. It is not necessary for me to refer to these matters in any greater detail.

By the time of the trial, the parties had been able to agree a list of issues, which is conveniently divided between those that relate to FPS’ claim, and Halfords’ counterclaim; after making observations about the witnesses, which I do next, I have divided my consideration of this case into similar sections. For case management reasons, not all of the issues in the agreed list were tried, and those which have been removed from consideration for the purposes of the present trial (being quantum and other consequential relief issues relating to the counterclaim), have been deleted from the list, as appears from the copy Agreed List of Issues (into which I have inserted my determination with paragraph references in this judgment), appended to this judgment. I have, in this judgment, broadly followed the numerical order in which the agreed list was set out, but I have occasionally departed from the numerical sequence, in common with counsel in the presentation of their submissions, for convenience of analysis. Whilst I have set out the agreed issues exactly as they appeared in the document prepared by counsel, I have, for my own part, substituted, in the body of the judgment, “FPS” as a shorthand for the claimant rather than using counsels’ shorthand of “First”.

At the conclusion of the evidence, time was allowed for the preparation of the comprehensive written submissions which I received from counsel for both parties. I heard oral submissions over three days in July. Despite the efficiency of counsel of both sides, the complexity of some of the issues which arose in this case prevented them from being able to conclude their respective submissions in reply fully, and, with a view to avoiding the costs of yet a further day, counsel agreed, at my invitation, to add by way of further written submissions, any material that they had not managed to cover orally. In accordance with directions given on the last day of the hearing, these written submissions in reply (together with further authorities) were provided to me during the first week of August 2016. Finally, in the first week of September 2016, and although this had not been provided for in any direction which I had previously given, counsel for FPS sent to me further written submissions in response to Halfords’ reply submissions, to which Halfords’ counsel duly responded the following week. Although the last-mentioned submission sent on behalf of Halfords invited me to disregard the submission made for FPS the previous week, the former also addressed the substance of the latter. I have read and considered all of the written submissions which have been sent to me, along with the oral submissions, and, notwithstanding the fact that the submissions received in September were not permitted in accordance with any direction previously given, I consider that it would be in accordance with the overriding objective for me to consider them and fully take them into account. I have done so in preparing this judgment.

The principal issues in this case, as to FPS’ claim for transfer or introduction fees on the one hand, and Halfords’ overcharging counterclaim on the other, I shall consider in separate parts of this judgment, and in relation to the latter I will consider the evidence, and make findings as to it, in that part of the judgment dealing with the counterclaim. It is, however, convenient for me at this stage to set out my observations about the witnesses, and for this purpose I have had regard to the totality of their evidence, whether given in relation to the claim, or the counterclaim. I have approached the task in this fashion because I am concerned with their reliability, and accuracy, as a whole, whilst of course I keep in mind throughout that any of them might be reliable on a particular topic, and not on another.

Except in the case of Mrs Lintern, I did not form the view that any witness who gave evidence in this case had sought to mislead the court. To the extent that I have not accepted evidence of any other witness, it was not because of any consideration that the witness was consciously putting forward a false case.

In addition to the witnesses that gave evidence orally, Mr Neil Goode, FPS’ branch manager in Dudley, provided a witness statement which was read to the court. On behalf of FPS witness statements from Mr Mark Shirley, who no longer works for Halfords but who had at some material times been its logistics controller, and from Mr Laurence Reddy, the chairman and founder of FPS, were also served. Neither Mr Shirley nor Mr Laurence Reddy gave evidence, and their respective statements were not put in evidence before the court on the application of either party. FPS’ failure to call those two witnesses was the subject of Mr Casey QC’s invitation to me to make robust assumptions and draw adverse inferences against FPS, relying in particular on the decision of the Court of Appeal in Wiszniewski v Central Manchester Health Authority [1998] PIQR P324. I shall return to this point later.

Mr Matthew Reddy is the son of Laurence Reddy. When I refer to “Mr Reddy” it is to this witness unless I indicate otherwise. His witness statement was lengthy and detailed. He joined FPS as a recruitment consultant in 2001, after completing his university education. He is now FPS’ chief executive. I accept his evidence as to the breadth of his working experience in the company, from his time as a recruitment consultant in various locations, to his becoming commercial director in 2003, where he dealt with back office functions, including payroll processes, credit control, commercial contracts, and other financial matters. In this function, he gained a good knowledge and understanding of Halfords as one of FPS’ three largest clients. Each time that any rate changes were effected with Halfords, Mr Reddy personally signed them off. Although it was not until 2009 that Mr Reddy became directly involved with Halfords from, as he put it, a “client facing perspective”, he kept closely in touch with matters affecting the Halfords connection, liaising closely with his father and other senior colleagues in regular meetings, as well as on a less formal, day-to-day basis. Prior to that time the senior representatives who dealt with Halfords were Laurence Reddy, John Crane (contracts manager), and James Ritchie (operations director). FPS’ primary contact with Halfords had been through John Chatwin, but then, from 2002, Mark Shirley, assisted by Don Tevlin (whose son, Lee, also works for Halfords in a more junior role). In 2009, Mr Reddy became managing director of FPS, before becoming chief executive in 2015.

A considerable advantage that Mr Reddy had over Halfords’ witnesses was that he actually dealt with some, though not all, negotiations concerning terms and rates, and he was able to speak to particular rates that were discussed from time to time with those who negotiated for Halfords, including Mr Shirley. Mr Reddy was at the sharp end of negotiation with Mr Shirley, whom he had found to be a tough negotiator, who had succeeded in driving down the management charge element of rates from 90 to 56 pence per hour in the period from 2005 to 2010. To deal with this kind of negotiation, and a skilful opponent, Mr Reddy had to be on top of the implications of legislative changes, and the implications that they had for costs, in order to be able to argue his corner.

Mr Reddy impressed me, during the course of the entire day over which he gave evidence, with his understanding of the minutiae of charging schemes, demonstrating that he readily appreciated the implications of schemes that were put in place, such as the Travel and Subsistence Scheme (“TSS”) agreed with HMRC, and of apparently modest changes to how the component elements of charges were calculated. He displayed a good, if not perfect, technical grasp of the impact of regulations; for example, in relation to the impact of the Working Time Directive (“WTD”) in relation to overtime hours, depending on whether hours were Saturdays or Sundays, and whether overtime was voluntary or contractual. (It would have been surprising if his understanding had been perfect, given the technical complexity of some aspects of the relevant Regulations, which, as I shall explain below, have been the subject of considerable judicial attention in the last few years.) I did not detect the evasiveness on this point, which Mr Casey suggested, in closing, that the witness had displayed. Mr Reddy had good reason to have this command of material relating to charging, because ultimately it had a direct impact on the profitability of his business, but even so, his command of the subject-matter was impressive. At the same time, he was a careful witness; an example of this was when he was questioned by Mr Casey about a rebate referred to in an e-mail sent to Mr Shirley by Mr Crane on 22^nd December 2004. When asked whether he knew what it was about, Mr Reddy was ready to accept that he did not, despite already having “looked back and tried to get the answers”; he said that it could be about a management fee reduction, but he was not prepared to be categoric about the point.

Mr Casey was critical of Mr Reddy for making a late concession (only in evidence-in-chief) concerning the erroneous inclusion of a WTD element in claimed transfer fees. Mr Casey also pointed to several instances, which he was able to identify precisely, which demonstrated that on a number of important issues it was Mr Reddy’s father who had dealt with Mr Shirley. For example, and this was not an isolated matter, in July 2010, FPS issued a credit note to Halfords relating to WTD; Mr Reddy said in cross-examination that the relevant discussions had been handled by his father and Mr Crane with Mr Shirley. Mr Casey contended that such matters demonstrated that Mr Reddy could only give extremely limited evidence because it was his father (who was not called) who had the relevant dealings with Halfords. Whilst I accept that Mr Casey’s examples were fairly chosen, and properly made out, this material did not, in my judgment, demonstrate that Mr Reddy had only a limited knowledge of matters at the heart of the parties’ dealings. In the course of many years of dealings one would not expect a senior representative of a company to deal with all issues that might crop up even with a very important client.

Mrs Thornton is a training manager engaged by FPS; she has held that position since 2003. She became involved on the fringes of the discussions that Mr Gardner of Mteq Limited (“Mteq”, see below) had when he began to investigate costings on Halfords’ behalf. She attended a meeting with Mr Gardner and others on 10^th October 2011, in the belief that it was a general audit meeting, but when it became apparent that Mr Gardner wanted to talk about levels of fees, Mrs Thornton was not able to assist. She attended a second such meeting the following month, and later provided some payslips at requests made on Halfords’ behalf.

Mrs Thornton struck me as a perfectly truthful witness, but it was very clear as she gave her oral evidence, that she had very little knowledge that had a direct bearing on the issues with which this case is concerned. She did not try to hide this. She volunteered that NI was not her area of expertise. She was, however, quite open about the fact that Workers would need to ask for their accrued holiday pay if they were going to receive it, but she seemed genuinely not to know about what happened to such accrued pay if they did not. As to the operation of the TSS, she said that she would not have been involved with it, but she suggested that she would have been surprised if Halfords had been unaware that FPS was operating such a scheme, explaining that open briefings took place with Workers on site at Halfords’ premises, a point about which she was not challenged.

Mr Stant is a chartered accountant, and a non-executive director of FPS. He has had extensive experience of working within the recruitment industry since 1995, and the operation of TSS within the industry. Before joining FPS, he held senior positions in many substantial recruitment businesses.

Mr Stant spoke knowledgeably about common practices for charging in the industry. His evidence provided useful background in order to understand some of the complexities associated with concepts such as “real” or “actual” NI, and the possible need for reconciliations (topics with which I shall deal later), but Mr Stant’s evidence had its limitations. He was not party to the actual negotiation of terms between the parties, and whilst he may be able to speak authoritatively about what other businesses may do, and how they may charge, this has little, if any, bearing on the issues which I have to decide. The need to fasten upon what was actually agreed between the parties, and the danger of generalisation about terms which were imprecise, and by no means bore a universal meaning in the relevant industry at the time, was demonstrated by Mr Stant’s evidence, and elucidated in Mr Casey’s cross-examination. In his witness statement, he had ventured interpretations for what amounted to “traditional pricing”, which he said would never be calculated by reference to “actual NI”. Yet this was completely inconsistent with what was said in a document, which I find that he had probably seen, produced in the course of a bidding process for Halfords by Extra Personnel Limited, a company in which he was then Group Financial Director. I am, however, satisfied that this was not due to any attempt to mislead by the witness, even though this demonstrates that I have to be careful as to the accuracy of his recollections.

Mr Pepall is, and since 2004 has been, FPS’ finance director. His evidence, relevant to the issues now being tried, was substantially concerned with the computation of the value of FPS’ claims depending upon which basis is correct, assuming that any sum is due to FPS from Halfords.

His reliability, and credibility, were attacked by Mr Casey because in examination-in-chief, Mr Pepall had asserted that the TSS caused FPS to incur significant costs of around £100,000 a year. However, in cross-examination he later conceded that because each Worker was charged an administration fee for signing up to the scheme, its operation should have been cost neutral to FPS; his earlier evidence was therefore misleading. In fairness to Mr Pepall, it seems to me that whilst, without the benefit of the elucidation of cross-examination, what he said first would have been misleading, this was not due to a lack of candour on his part. He was asked about the cost of running the scheme; he was not asked about countervailing benefits at that stage. When he was questioned about the matter, without procrastination, he disclosed the position. I regarded him as not merely a truthful witness, but reliable and accurate in his evidence.

Stacey Lintern was, from June 2008 until September 2013, a supply chain business analyst with Halfords, in which capacity she provided support to the logistics management team in Halfords’ distribution centre. Her responsibilities included reporting on, and controlling, costs incurred with Halfords’ suppliers, and ensuring payment of invoices. She was the only witness called by Halfords who could speak of the relationship between the parties extending back any material time before it was determined.

Mrs Lintern gave evidence over an entire day. She accepted, at a very early stage in her cross-examination, that her understanding of arrangements made with Halfords, from the time that she joined the company, was derived from what she was told by Mr Shirley, her more senior colleague, and Don Tevlin. It was Mr Shirley who had the first-hand dealings with FPS, and she deferred to him in respect of what arrangements were made.

I found Mrs Lintern’s evidence to be extremely unreliable, and positively misleading, on matters which were central to Halfords’ counterclaim, in respect of which, for reasons that I shall explain later, the issue of whether NI reconciliations were pursued by her was of the utmost importance. Her assertions as to what she had done in pursuit of the reconciliations developed significantly in the course of cross-examination, and I found her attempts to explain her conduct, by blaming, variously, workload, and the shortcomings of her maternity leave replacement cover, wholly unconvincing. I have reluctantly had to conclude that when she professed to have recollections of chasing reconciliations from FPS, she had no genuine belief in having pursued the matter as she asserted. In light of this assessment as to this aspect of her evidence, I have had to treat the remainder of what she said with considerable caution.

Ms Muir is the Head of Procurement at Halfords. She took up her position on 5^th December 2011, nearly two weeks after Halfords had notified FPS that Staffline had won the contract to supply Workers, and a few days after Mr Shirley had left Halfords. She referred to experience in her previous employment, but gave little evidence as to what that experience had amounted to. Much, if not most, of Ms Muir’s written evidence was by way of a commentary on what the term “costs plus” would suggest in terms of that for which a supplier was entitled to charge in respect of pay rate, holiday pay, and NI. Her evidence in relation to these items was couched in terms of what she would expect. She did not give evidence as an expert, nor did she suggest that within the industry any particular term had a clear and established meaning.

On the issue of transfer fees, Ms Muir acknowledged that such fees are often payable if an employer client takes on Workers to its permanent staff, but she added that she had never known a situation in which such fees had been charged upon the transfer of a Worker from one agency to another.

I was not assisted by this lady’s evidence, though I considered that it was honestly given. Her evidence did not speak to hard facts of which she had knowledge, but amounted to little more than expression of her opinions.

Mr Turner is Staffline’s regional manager. He was called by Halfords in connection with the issue of the number of Workers who were transferred from FPS to Staffline. His evidence was based upon timesheet reports from his company’s management and payroll system (known as “Infinity”). He was recalled briefly, some weeks after he first gave evidence, to supplement the material that had been adduced in connection with Staffline’s records. His truthfulness as a witness was not challenged.

Mr Gardner is the chief financial officer at Mteq, a business retained by Halfords, early in 2011, for the purpose of reviewing Halfords’ indirect costs. Mr Gardner explained Mteq’s job as being, essentially, to help cut down costs for its clients by analysing what caused them to spend money, and this was the work that he consequently undertook for Halfords in relation to FPS. Mteq was retained on a fixed fee. Work began in May 2011, and continued through until the following December. He said, and I accept, that FPS was one of Halfords’ largest suppliers, with an average annual spend of over £3m.

I found Mr Gardner to be a perfectly honest witness, but his direct knowledge of events was necessarily confined to matters arising from around the middle of 2011, which was the time when the parties’ relationship was approaching its end.

Is Halfords liable to pay a transfer / introduction fee to First?

Although the issue is not expressly framed in this manner, it seems to me that the answer to Issue 1(a) must be read as being subject to the answers to Issue 1(b), because if clauses 6 and 10 (1) were not incorporated into the contract between the parties, or (2) are unenforceable under the Conduct Regulations, or (3) are void for uncertainty, then no transfer or introduction fee could be payable under them. At the heart of the case, on the Claim, is whether on a proper construction of clauses 6 and 10 of the Conditions, FPS is entitled to a fee, and whether the relevant provisions of the Conditions are unenforceable pursuant to the Conduct Regulations. Clauses 6 and 10 provide as follows:

The reference to “IPS” in clause 6(i), it was common ground, was to “The Terms of Business for the Introduction of Permanent Staff”, which were set out on the second page of the document setting out the Conditions which was provided by FPS to Halfords. As the title of this part of the document suggests, it was intended to regulate the relationship between FPS and a client where FPS was introducing permanent staff as opposed to temporary employees. Subject to arguments as to whether clauses 6, or 10, or both, were incorporated at all, there can be no doubt that the provisions of IPS clause 9 were incorporated by reference in clause 6(i) with any consequential implications that this might have for the interpretation of clauses 6 and 10 generally. IPS clause 9 was in these terms (there were no introductory words, and what is set out below was the full extent of its text):

“SCALE OF FEES

£0-£9,999	15% of total annual commencing salary
£10,000 - £14,999	17.5% of total annual commencing salary
£15,000 - £19,999	20.0% of total annual commencing salary
£20,000 - £34,999	25.0% of total annual commencing salary
£35,000+	30.0%of total annual commencing salary
Should the Worker, having taken up employment; subsequently leave, FPS will allow the following credits;
PERIOD OF EMPLOYMENT	PERCENTAGE CREDIT
Up to 2 weeks	100% credit
Not exceeding 3 weeks	60% credit
Not exceeding 4 weeks	40% credit
Not exceeding 5 weeks	20% credit
Not exceeding 6 weeks	10% credit”

Reference must also be made to other provisions of the IPS terms, which could be relevant to the calculation of transfer fees claimed by FPS. Definitions were set out in clause 1.1:

“

"Applicant"	means the person introduced by us to you for and Engagement including any officer or employee of the Applicant if the Applicant is a limited company or members of our own staff;
"Client"	means the person, firm or corporate body together with any subsidiary or associated company as defined by the Companies Act 1985 to whom the Applicant is introduced;
"Engagement"	means the engagement, employment or use of the Applicant in any capacity by you or any third party on a permanent or temporary basis, whether direct or otherwise;
"Introduction"	means (i) your interview of an Applicant in person or by telephone following your instruction to us to search for an Applicant' or (ii) our passing to you a curriculum vitae or other information which identifies the Applicant and which leads to an Engagement of that Applicant;
"Remuneration"	includes salary or fees payments and other taxable (and where applicable, non-taxable) emoluments payable to or receivable by the Applicant for services rendered to or for you.”

The material parts are contained in clause 3.4, 3.5 and 3.9:

“3.4

The fees payable to us by you for an Introduction resulting in an Engagement is calculated in accordance with our accompanying scale of fees on annual Remuneration including all weighting factors at commencement of Engagement. VAT is payable in addition to the fee.

3.5

If there are exceptional circumstances (commission etc) where an annualised pay figure cannot be determined at outset we will agree with you (and confirm in writing) a pay figure on which our fee will be based, before the Introduction.

…

3.9

If Remuneration not ascertainable (or agreed in accordance with clause 3.5 above) we will charge a fee calculated in accordance with clause 3.4 on minimum level of remuneration applicable for the position in which Applicant engaged with regard to any information supplied to us by you and/or comparable positions in the market generally for such positions.”

The material provisions of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (“the Conduct Regulations”), made pursuant to an enabling power conferred upon the Secretary of State by s5 of the Employment Agencies Act 1973, are contained in Regulation 10 which is in the following terms:

“(1)

Any term of a contract between an employment business and a hirer which is contingent on a work-seeker taking up employment with the hirer or working for the hirer pursuant to being supplied by another employment business is unenforceable by the employment business in relation to that work-seeker unless the contract provides that instead of a transfer fee the hirer may by notice to the employment business elect for a hire period of such length as is specified in the contract during which the work-seeker will be supplied to the hirer–

(a)

in a case where there has been no supply, on the terms specified in the contract; or

(b)

in any other case, on terms no less favourable to the hirer than those which applied immediately before the employment business received the notice.

(2)

In paragraph (1), “transfer fee” means any payment in connection with the work-seeker taking up employment with the hirer or in connection with the work-seeker working for the hirer pursuant to being supplied by another employment business.

(3)

Any term as mentioned in paragraph (1) is unenforceable where the employment business does not supply the work-seeker to the hirer, in accordance with the contract, for the duration of the hire period referred to in paragraph (1) unless the employment business is in no way at fault.

(4)

Any term of a contract between an employment business and a hirer which is contingent on any of the following events, namely a work-seeker–

(a)

taking up employment with the hirer;

(b)

taking up employment with any person (other than the hirer) to whom the hirer has introduced him; or

(c)

working for the hirer pursuant to being supplied by another employment business,

is unenforceable by the employment business in relation to the event concerned where the work-seeker begins such employment or begins working for the hirer pursuant to being supplied by another employment business, as the case may be, after the end of the relevant period.

(5)

In paragraph (4), “the relevant period” means whichever of the following periods ends later, namely–

(a)

the period of 8 weeks commencing on the day after the day on which the work-seeker last worked for the hirer pursuant to being supplied by the employment business; or

(b)

subject to paragraph (6), the period of 14 weeks commencing on the first day on which the work-seeker worked for the hirer pursuant to the supply of that work-seeker to that hirer by the employment business.

(6)

In determining for the purposes of paragraph (5)(b) the first day on which the work-seeker worked for the hirer pursuant to the supply of that work-seeker to that hirer by the employment business, no account shall be taken of any supply that occurred prior to a period of more than 42 days during which that work-seeker did not work for that hirer pursuant to being supplied by that employment business.

(7)

An employment business shall not–

(a)

seek to enforce against the hirer, or otherwise seek to give effect to, any term of a contract which is unenforceable by virtue of paragraph (1), (3) or (4); or

(b)

otherwise directly or indirectly request a payment to which by virtue of this regulation the employment business is not entitled.”

The Department of Trade and Industry published “Guidance on the Conduct of Employment Agencies and Employment Businesses Regulations 2003” in January 2004 (“the DTI Guidance”). It is common ground that the DTI Guidance, having been available to both parties, forms part of the material background which is to be taken into account in construing the agreement made between the parties in this case, though Mr Casey stressed that in light of the recent decision of the Supreme Court in Arnold v Britton [2015] AC 1619 primacy must be afforded to the actual language used by the parties. The DTI Guidance, insofar as it is material, is in the following terms (the paragraph numbering is mine, added for convenience of reference):

Important additional commentary is to be found in a Guidance Note published by the Recruitment and Employment Confederation (“REC”), the UK-wide industry body for recruitment and staffing businesses; it is entitled “The Conduct Regulations – Is the client liable to pay a transfer fee in a TUPE transfer?”. This Note, which is not to be confused with the DTI Guidance, addresses the incidence of TUPE upon fee recovery for transfers:

“TUPE contains no provisions that render an agreement by the client to pay a transfer fee unenforceable. Therefore if the terms between the outgoing employment business and the client contain a transfer fee clause, this does not become unenforceable because of the TUPE transfer.

The issue will be determined by the terms of the contract; specifically whether the contract excludes the charging of a transfer fee in the event of a TUPE transfer. …

Note that when negotiating new client terms, some clients may seek to specifically exclude the right to charge a transfer fee in the case of a TUPE transfer.”

Mr Pepperall QC, although from the outset realistically recognising the “somewhat inelegant” drafting of the clauses with which this case is concerned, submitted that the objective intention behind their provisions was clear, namely that FPS would have the benefit of some protection for its investment in its temporary workers by being entitled to transfer fees should those workers transfer to Halfords or to a new agency. There was, he submitted, a clear commercial justification for such fees, having regard to the time and cost invested in recruiting, training, and equipping staff. He relied on the evidence that he had adduced in cross-examination of Mr Turner as to the threats to an employment business from “poaching” of workers by clients or other employment businesses, and the particular threat posed by a service provision change under the operation of TUPE because such a transfer can take out an entire team of workers (often recruited and trained at the expense of the employment business) at a stroke, and the incoming employment business would avoid the costs and effort of recruitment, initial training, and establishing an on-site management team. Mr Goode’s evidence also demonstrated FPS’ significant investment in selection and training of staff, as well as FPS’ commitment to close liaison with Halfords as to staffing requirements.

Mr Pepperall began his submissions on this issue by relying on a number of points to demonstrate that transfer and introduction fees are a well-established feature of recruitment industry business, recognised and accommodated in statute, in case law, and in industry guidance:

The present case, submitted Mr Pepperall, fitted into the DTI Guidance (and industry) categories of “temp-to-temp” or “temp-to-third party”. Of the three “situations” described in bold text in the DTI Guidance, Mr Pepperall submitted that the present case falls within the latter two, namely (2) supply with fee relating to “temp-to-perm” or “temp-to-temp” engagements following supply, or (3) “temp-to-third party” fees where there has been a supply and the client has introduced the worker to a third party.

Identifying Clauses 6(i), 6(ii), 6(iii), 6(v) and 10 as key, Mr Pepperall argued that there were three distinct bases, or triggers, upon which FPS was entitled to a transfer fee:

In his careful analysis of the relevant provisions in his oral closing submissions (repeated in his written submissions in reply), Mr Pepperall revisited and surveyed what he suggested was a scheme for transfer fees, but which offered an election for an EPH so as to be enforceable under the Conduct Regulations. He described clauses 6(ii) and (iii) as the “engine room” of the scheme, whereby 6(ii) offered the election for an EPH, and 6(iii) made provision for a transfer fee if no election was made. If an election for an EPH were made, then sub-clause (ii) identified an “accompanying scale of fees” which he said was that set out at clause 6(vii) under the heading “Extended Period of Hire”, so that, for example, in the case of a worker who had worked for between 1 and 14 weeks, the EPH would be 26 weeks. It was, he submitted, perfectly clear that although clause 6(ii) did not specifically refer to clause 6(vii), this connection was intended because the latter clause opens with the words “If the extended period of hire is elected by the Client then the following scale of fees will apply …”. Sub-clause 6(vii) was, he said, “all to do with elections”, was introduced by the premise that an election had been made under clause 6(ii), and was the only clause that gave a rate of fees in the event of an EPH election. On the other hand, transfer fees were the subject of clause 6(iii); payment of such fees was plainly an alternative to electing to take an EPH (given the word “or” at the conclusion of clause 6(ii)). Clause 6(iii) spelt out that such fees were to be “calculated as a percentage of Remuneration at commencement of Engagement in accordance with our accompanying scale of fees”, which this time, he submitted, was a reference to the fees at IPS clause 9.

Moving on from the “engine room” of clauses 6(ii) and (iii), Mr Pepperall went next to his first “gateway”, clause 6(i), which expressly refers to IPS clause 9, which specifies the relevant scale of fees in percentage terms, depending upon salary level; it could not, this time, be clause 6(vii) because that clause was nothing to do with percentages of remuneration. The fees are then to be dealt with, he maintained, as specified in the “engine room”, although there is no expressed direct connection between clause 6(i) and the two sub-clauses which follow it.

Mr Pepperall then moved to clause 6(v), the next “gateway”, which specifically refers back to clause 6(iii), which is an alternative to the EPH election under 6(ii). Finally, as to the “gateways”, he turned to clause 10 (in this case, temporary workers being retained by Halfords as introduced or supplied by Staffline); this provision, he submitted, expressly takes one back to clause 6 and the “engine room”. It really had to be the “engine room” provisions because clauses 6(i) and (v) deal with other “gateways”, 6(iv) is irrelevant (dealing with fee adjustments), 6(vi) is concerned with definitions, 6(vii) and (viii) are about calculating EPHs. He suggested that 6(ix) dealt with more definitions; I do not think it does. It seems to me more like an anti-avoidance provision, but I can accept that it is not a clause that impinges upon the meaning of clause 10.

Addressing clauses 6(vii) and (viii), he submitted that these only applied where an EPH election had been made, as their opening words state in terms. As to the reference to Transfer Fees to which a column is devoted in clause 6(vii), but unexplained within that sub-clause, Mr Pepperall submitted that light was shone upon this in clause 6(viii), though, on any view, something had gone wrong with that clause which it will be seen, refers to a transfer fee being calculated in accordance with clause 6(viii), which makes no sense. The explanation, said Mr Pepperall, was that the intended reference must have been to clause 6(vii), and not to clause 6(iii) as Mr Casey suggested. This must be so, went the submission, because 6(iii) was nothing to do with an EPH election which is manifestly the subject matter of 6(viii). Adopting this suggested reading, the effect of clause 6(viii) was that if a client elected for an EPH, but before the end of the EPH, the worker concerned were to be taken on by the client, or chose not to be supplied to the client for the EPH, then the level of transfer fee stipulated in the column in clause 6(vii) would apply. In short, Mr Pepperall contended that 6(viii) catered for the breakdown of the operation of the EPH. In reply he maintained that Mr Casey was simply wrong in making the submission that a transfer fee was payable even where an EPH election had been made, outside of the limited circumstances in which such a fee was payable upon the breakdown of an EPH.

In short, Mr Pepperall maintained that between them clauses 6(i), (v), and 10 were different instances of the triggering of a transfer fee liability, but in each case there was an EPH election available. If there were any doubt about this suggested, Conduct Regulations compliant construction, particularly in relation to clause 10 in relation to which Mr Casey’s fire was most forcefully directed for suggested lack of opportunity to make an EPH election, then I should lean towards a construction that rendered the clause lawful. Taking such an approach was, he suggested, consistent with authority, and for this he relied upon the statement of principle in Lewison’s Interpretation of Contracts 6^th edition at para 7.11 that “Where the words of a contract are capable of two meanings, one of which is lawful and the other unlawful, the former interpretation should be preferred.” In reply to Mr Casey’s submission that this principle was engaged only where one construction of a contract would render it unlawful in the sense of being illegal, so that it had no application in this case because the provisions of the Regulations would merely render the provisions ineffective or unenforceable, Mr Pepperall submitted that the principle is nonetheless engaged; he referred me to Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB 897, CA, per Simon Brown LJ, as he then was, at page 906, to BCCI v Ali [2002] 1 AC 251, HL, per Lord Hoffmann at para 39, and to Anglo Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd [2009] CP Rep 30, and to Lewison at para 7.16 in support of that proposition.

The fact that this was a TUPE transfer, Mr Pepperall submitted, makes no difference to the liability to pay transfer fees. He relied upon the following matters:

Mr Casey began his powerful submissions on this part of the case with two general points:

In reply, both in his oral submissions, and later written submissions, Mr Casey raised a further point of general application. He disputed that it was possible to save clauses 6 and 10, if they were capable of two meanings, one lawful and the other unlawful, by preferring the former. First, this was because he submitted that the clauses were simply not capable of being construed so as not to fall foul of Regulation 10(1) of the Conduct Regulations; there was, therefore, no scope for the application of any such saving principle. Secondly, he submitted that the traditional approach, discussed in Lewison at para 7.11, is that the court should not lean in any particular direction, but that it should construe the contract, and if that construction suggested that the contract was unlawful, then that is the end of the matter.

Turning to clause 6(i), Mr Casey contended that it was not applicable to a temp-to-temp transfer such as from FPS to Staffline because (1) the transfer does not result from an “introduction” of the relevant workers by Halfords to Staffline, and (2) Staffline did not “employ” the workers within the meaning of clause 6(i). The operative part of the clause, Mr Casey submitted, required both such causative “introduction”, and employment, but there was, he submitted, neither such an introduction nor such employment.

As for the question of introduction, Mr Casey submitted that it was clear from Regulation 10 of the Conduct Regulations that a TUPE transfer of workers from one employment business to another was something different from an introduction by a hirer to another party that then went on to employ the worker; he emphasised that Regulation 10(4)(b) (a work-seeker “taking up employment with any person (other than the hirer) to whom the hirer has introduced him”) and (c) (a work-seeker “working for the hirer pursuant to being supplied by another employment business”) identified separate and distinct events. He suggested that the DTI Guidance (see the second para quoted from the Guidance above) made it clear that an introduction needed to be within the first (introduction to a client/hirer but no supply) or third of the scenarios (temp-to-third party). However, he argued, in the second scenario, temp-to-perm or temp-to-temp, there is no introduction, but, rather, an engagement following supply in the language of the Guidance.

Finally, as to the meaning of “introduction”, Mr Casey submitted that if it were permissible to rely upon the provisions of the IPS for this purpose, there had been no “Introduction” within the IPS terms which define the word as follows:

“ ‘Introduction’ means (i) your interview of an Applicant in person or by telephone following your instruction to us to search for an Applicant' or (ii) our passing to you a curriculum vitae or other information which identifies the Applicant and which leads to an Engagement of that Applicant”

I should add that Mr Casey’s primary submission was that the IPS terms could not be relied upon as an aid to interpretation for the purposes of the terms under consideration because, by clause 1(i), the IPS terms were only applicable where specified, and this definition was not so specified to apply; contrast this with the express specification at clause 6(i).

Employment, for the purposes of clause 6(i), argued Mr Casey, meant employment by a permanent employer, and not an employment business. He relied for this proposition upon Mayer (t/a Renee Mayer Agency) v Combined Road Services Ltd [1998] EWCA Civ 208, another case in which the entitlement of an employment agency to fees following the transfer of temporary workers to a new employment business (“Tudor”), was in issue. In that case the clause broadly corresponding to clause 6(i) in the present case was in the following terms: “The engagement or use by a Client of a Temporary Worker or former Temporary Worker introduced by the Employment Business whether for a definite of indefinite period, or the introduction of such Temporary Worker to other employers with resulting engagement … renders the Client subject to the payment of an introduction fee …”. Mr Casey submitted that this provision was materially indistinguishable from the second limb of clause 6(i) in the present case. At trial, the judge, HH Judge Elystan Morgan, sitting in the Crewe County Court, dismissed the agency’s claim for its fees, as Mummery LJ explained in the Court of Appeal, first on the ground that “the expression “other employers” in the second limb of clause 6 of the conditions relating to Temporary Staff did not apply to an agency such as Tudor. Tudor was not the employer of the temporary workers. The expression “other employers” referred to a client/employer, that is someone in the position of CRS [the hirer in that case]” (original emphasis). The Court of Appeal, dismissing the agency’s appeal from the trial judge’s decision on this point, and another point material to the present case (to which I shall come later in this judgment), upheld this interpretation on the part of the trial judge. Mr Casey submitted that it followed in the case of clause 6(i), “any other person who…employs the Employee” refers to a client/employer, and not to an employment business such as Staffline.

Mr Casey went on to refer, and rely upon, another passage in the judgment of Mummery LJ, for additional support:

“Clause 6 renders an employer/client, such as CRS, liable to pay an introduction fee if it introduces temporary staff to "other employers" with resulting engagement. As has been observed by [counsel for CRS] in his submissions, "employers" is not a defined term in the agreement. The other parts of the terms and conditions, however, treat CRS as "employer/client" for the purposes of the agreement in respect of both permanent staff and temporary staff. I refer, in particular, to the language of clause 1 under the conditions relating to permanent staff, which refers to the "employer client (hereinafter referred to as the client)", which in this context would be CRS. I also refer to the language of clause 3 under that section, which is implicitly referred to in clause 6 in the section relating to temporary staff for the calculation of the introduction fee. Clause 3 expressly refers to pay and emoluments "payable by the client to the applicant", the applicant in this case being staff. That provision works in the case of an employer/client, such as CRS, or a subsidiary of CRS, or another employer client who directly remunerates staff by making payments to applicant staff. That provision does not, however, work in the case of another employment agency, such as Tudor. In such a case the employer/client does not pay anything to the applicant staff. The agency pays the staff. The employer/client, who hires the temporary workers, pays the agency. Thus, for clause 6 relating to temporary staff to work in conjunction with clause 3 relating to permanent staff, "other employers" in clause 6 has to be construed as referring to an employer/client and cannot be sensibly construed to refer to an agency/employer.”

Mr Casey submitted that the cross reference to the IPS terms in the present case similarly supports the conclusion that the relevant “other person” (in the present case) or “other employer” (in Mayer) means the ‘end user’ is the person who actually uses the worker’s services, a conclusion further strengthened, he maintained, by the fact that the first limb of clause 6(i) contemplates ‘employment’ by an ‘end user’ (the Client), and it would, he suggested, be odd if the second limb were to apply to a wholly different type of relationship.

Mr Casey then returned to the effect of TUPE, the effect of which, he said, was to transfer the workers’ contracts of employment by way of a statutory novation, so that no new contract of employment arises. There was no introduction to Staffline, and none which resulted in employment by it. Further there was no subsequent consideration or deliberation by Staffline, who did not interview workers or look at CVs, and had no choice as to taking them on.

This provision does not assist FPS, submitted Mr Casey, because it is not applicable in the case of a temp-to-temp transfer. He gave three reasons, the first being that the clause envisages a temp-to-third party transfer.

Mr Casey’s second and third reasons overlapped with those which I have described above in relation to clause 6(i); respectively there was no “introduction” by Halfords of the workers to Staffline, and any introduction, if there were one, did not result in an engagement, assuming that there was an engagement; it resulted from the operation of TUPE.

Clause 10, Mr Casey maintained, envisaged a temp-to-temp scenario, but not one where there was automatic engagement under TUPE, because it could not be said that Halfords “retained” the workers as “introduced or supplied” by Staffline within the meaning of the clause. Further, if the clause had been intended to operate in a TUPE situation, it could easily have been drafted so as to make this clear, especially since FPS’ terms were drafted by a member of the Board of REC; this point was reiterated in relation to ambiguity, and though I keep it in mind in that connection, I mention it only here. The clause, Mr Casey submitted, was simply designed to provide protection for FPS against another agency’s poaching its temporary workers.

Finally, on part (a) of the First Issue, Mr Casey attacked clauses 6 and 10 as being, at the very least, ambiguous. This, he said, was demonstrated by the fact that the clauses could generate the kinds of construction arguments in respect of them which he, ably assisted by Mr Poole, advanced. He identified differences between Messrs Matthew and Laurence Reddy (the latter not being called) as to whether clause 6(i) or 6(v) applied, and noted that they did not mention clause 10. Mr Casey then advanced a contra proferentem submission on the basis that the terms were those proffered by FPS, and finished on the point with a memorable reference to the judgment of Binnie J in the Supreme Court of Canada in Co-operators Life Insurance Co v Gibbens 2009 SCC 59 (Supreme Court of Canada): “Whoever holds the pen creates the ambiguity and must live with the consequences”.

In relation to the various matters raised under Issue 1(b), it is, I consider, in relation to each, more convenient to begin by describing the submissions advanced for Halfords, since Mr Pepperall was, in each instance, in substance responding to matters advanced by Mr Casey.

Mr Casey submitted that the provisions of FPS’ terms as to payment of transfer fees were onerous and unusual, and that these provisions had not been drawn sufficiently to Halfords’ attention, with the result that they were not incorporated in the agreement between the parties; he relied on the passage in Chitty on Contracts 32^nd ed. at 13-015:

“Although the party receiving the document knows it contains conditions, if the particular condition relied on is one which is a particularly onerous or unusual term, or is one which involves the abrogation of a right given by statute, the party tendering the document must show that it has been brought fairly and reasonably to the other's attention. “Some clauses which I have seen,” said Denning L.J.:

“ … would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.” ”

The conditions were onerous and unusual, he submitted, if, as FPS suggests, they are applicable to a TUPE transfer, and require Halfords to pay a significant amount of a worker’s new salary to FPS, even where the worker would, or might, only be working a short time for Halfords. This, he argued, prohibitively penalised lawful termination of arrangements with FPS after a re-tender in which Halfords has no choice as to whether to keep the existing temporary workers. He contended that this was compounded by the operation of the clauses requiring significant transfer fees to be paid even where Halfords elected for an EPH. He did not suggest, nor realistically could he do so, that provision for transfer fees upon the transfer of workers to the client itself, a third party, or another employment business was onerous or unusual, but it was the extent of the liability, with fees payable even when an EPH was selected, and particularly where the clauses might apply on a TUPE transfer, that was onerous and unusual. These features, he submitted, needed to be drawn to Halfords’ attention.

The features described were not, however, Mr Casey maintained, adequately drawn to Halfords’ attention. Far from it, the print on the contract document was small, on some copies blurred, with unclear and misleading terminology, incomplete and unintelligible sentences and clauses, unclear syntax and structure, with scales of fees referred to in separate sets of terms that related to the introduction of permanent staff. He repeated his point as to senior staff at FPS not being clear as to the relevant terms, and suggested that it was well-illustrated by the marked discrepancy in invoicing for transfer fees, initially for about £227,000 in December 2012, with replacement invoices in June 2014 totalling about £557,000.

All of the charging provisions, whether under clauses 6(i), 6(v), or 10, are unenforceable, Mr Casey submitted, because they failed to comply with Regulation 10(1) of the Conduct Regulations. Mr Casey worked systematically through the suggested shortcomings of each clause, but in short, his submissions were that they did not comply with the requirements of Regulation 10(1) in that they failed (1) to provide that after any EPH, a worker would transfer without any fee being charged, (2) to provide that Halfords could extend the term of employment, (3) to specify a length of hire period. He drew particular attention to the provisions of Regulations 10(1) and 10(7).

Dealing with the first of these points, the individual charging clauses, Mr Casey’s submissions were that:

As to the second point, the failure to provide that Halfords could extend the term of employment, Mr Casey submitted that the TUPE transfer was mandatory and automatic once the service provision change had been engaged, so that no extension by Halfords through FPS on the same terms (or terms no less favourable) was possible at all.

As to the third point, the failure to specify the period of hire, Mr Casey submitted that nowhere in clauses 6, 10, or elsewhere was the length of period to which any election applies specified or made clear. This requirement is mandatory under Regulation 10(1), and failure to specify a period rendered it impossible to operate Regulation 10(3) of the Conduct Regulation (unenforceability where the employment business does not supply the worker for the duration of the EPH). Mr Casey referred also to para (9) the DTI Guidance above which spells out the need for agreement as to the period of the EPH or level of transfer fee in the parties’ contract.

Mr Casey’s starting point, in relation to IPS clause 9, was that under whichever of clauses 6(i), (v) or 10, a fee was sought to be recovered, the scale of fees in the clause simply could not be applicable since:

Next, whilst acknowledging the general principle that a contractual provision will only be void for uncertainty if the court cannot reach a conclusion as to what was in the parties’ minds or where it is not safe for the court to prefer one possible meaning to other equally possible meanings (he referred to Lewison The Interpretation of Contracts, 6^th ed. at 8.15, and the authorities referred to in that text), Mr Casey maintained that the clause was void for uncertainty when applied to the situation of a transfer of temporary workers under TUPE to a new agency. He relied, in particular upon the decision of the Court of Appeal in Mayer (t/a Renee Mayer Agency) v Combined Road Services Ltd [1998] EWCA Civ 208, which he said had “resoundingly rejected” the argument that fees as claimed by FPS in the present case could be calculated by reference to an annualised hourly rate. Mr Casey emphasised that in Mayer, as in the present case, provision for the calculation of the introduction fee was found under the heading ‘Permanent Staff’. The claimant in that case argued that the remuneration could be annualised from what had been agreed to be paid by the month, by the week or even by the hour. Upholding the trial judge, the Court of Appeal rejected this submission, and the suggestion that “it was all a matter of arithmetic”.

Mr Casey submitted that the present case cannot be distinguished in any material respect from Mayer as to terms of the nature of transfer (workers being transferred from one employment business to another), the nature of the temporary workers being transferred (Workers) or the nature of the clause providing for calculation of the introduction/transfer fee (based on the annual remuneration of the temporary worker). Thus, he maintained, the reasoning in Mayer demonstrates that IPS clause 9 cannot operate in the present context of a transfer of the Workers to Staffline. It is, therefore, void for uncertainty. In the same way, submitted Mr Casey, clause 6(v) is void for uncertainty (referring back to clause 6(iii) - “remuneration at commencement of Engagement”), being just as uncertain as “total annual commencing salary”, and so is clause 10 by providing that the fee is to be calculated in line with clause 6 whose provisions, whether under clauses 6(i), or (v), are equally bad and uncertain for the reasons just explained.

Further, Mr Casey argued in reply, if, contrary to his submissions, transfer fees are due, and the relevant contractual provisions are enforceable and sufficiently certain, the “annual commencing salary” was to be construed as meaning the annual amount of income that was guaranteed by Staffline to a worker, namely the revenue earned under the guaranteed number of hours under the contract with Staffline, which was 348 hours per year, at the rate of £6.08 per hour. This approach was dictated by the provisions of IPS clause 3.9, he argued, emphasising the words “on minimum level of remuneration applicable for the position in which Applicant engaged” in that clause.

In the course of argument, I invited counsel to consider the decision of the Court of Appeal in Lavarack v Woods of Colchester [1967] 1 QB 278, which was an employment case concerned with the assessment of damages. The Court of Appeal held that where an employee had been wrongfully dismissed his damages were to be determined on the basis of what his contractual rights had been, so that it was not permissible to take into account enhanced benefits which would probably have been conferred upon him had he not been dismissed, but to which he had had no contractual entitlement. Mr Casey rightly acknowledged that the case was concerned with the measure of damages for wrongful dismissal. However, citing and relying upon a passage in the judgment of Diplock LJ, as he then was, at page 294, he submitted that the law is concerned only with obligations and not expectations, so that the court should in the present case have regard only to the number of hours which workers transferring from FPS to Staffline were contractually entitled (348 per year), rather than the number of hours that they might be expected to work in a year. That would certainly be the position of the Worker concerned if he were to be wrongfully dismissed, Mr Casey argued, so that it would be curious that the position between FPS and Halfords should be different, particularly where the position affecting any worker’s remuneration relating to working with Halfords would depend upon many unpredictable factors such as whether a worker might work for other clients, and the level of demand experienced by Halfords.

Thus, Mr Casey submitted, if contrary to his submissions that no fees at all are due, and that the relevant contractual provisions are unenforceable, or not sufficiently certain, that “annual commencing salary” meant simply the annual amount of salary that was guaranteed by Staffline to a Worker; this was 348 hours per year at a rate of £6.08. He emphasised the provisions of clause 3.9 of the IPS in relation to the minimum level of salary, and suggested that FPS’ case based upon a 37.5-hour week over a full year was fanciful and unrealistic, given that no Worker actually achieved such hours in the year preceding or following transfer. The most sensible solution, he said, was to take the minimum guaranteed hours, and that this approach would result in Halfords’ having a liability of just £21,000.

As a further alternative, Mr Casey suggested that the only sensible basis upon which “annual commencing salary” could be calculated in relation to the Workers, who were paid by the hour on a casual basis, and without a fixed salary, was by reference to the actual hours worked by the Workers in the year following transfer, and not based upon annualisation. (He submitted that this would lead to a Halfords liability of around £76,000, but I deal with quantum submissions later.) Any other approach, he submitted, would stray into the “dangerous territory of invented and imagined contractual obligations” deprecated by Mummery LJ.

There was nothing unusual or onerous about the imposition of fees in the circumstances, Mr Pepperall submitted. Further, contrary to submissions advanced on behalf of Halfords, and for the reasons developed in relation to the interpretation of clauses 6 and 10, there was no provision for there to be payment of both a transfer fee and liability under an EPH. The terms were intended to be compliant with the Conduct Regulations, and should be so construed; reliance was placed on the decision in Mploy, which I consider below.

Still further, Mr Pepperall submitted that clause 6 was plainly incorporated. The present case is not akin to a “ticket case” affecting consumers where reliance is placed upon an onerous term which is not provided to, or sufficiently drawn to the attention of, a customer. The term, or a similar one, had been present in all versions of the conditions provided to Halfords at least since 2003, it was clearly set out in writing on the front page of the Conditions, and Halfords is a substantial organisation with in-house counsel, and can be expected to be aware of the terms of a contract into which it is entering.

On a proper construction of clauses 6 and 10 of the Conditions, in line with the submissions advanced by Mr Pepperall and which I have described above and need not repeat, he submitted that the Conditions were compliant because they afforded to Halfords, in any relevant situation, the option of avoiding liability to pay transfer fees by electing for an EPH, though Halfords did not choose to take advantage of that option. He repeated his submissions based upon Mploy, and in this context, he submitted that the decision in that case was supported by what Lord Clarke (with whom all their lordships agreed) said in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, highlighting in particular what was said by Lord Clarke at para 30. To set the passage cited by Mr Pepperall in context, and to avoid the need to do so later in this judgment, I extend the citation a little:

“29 … it is worth setting out two extracts from the judgment of Longmore LJ in Barclays Bank plc v HHY Luxembourg SARL [2011] 1 BCLC 336, paras 25 and 26:

“25.

The matter does not of course rest there because when alternative constructions are available one has to consider which is the more commercially sensible. On this aspect of the matter Mr Zacaroli has all the cards …

“26.

The judge said that it did not flout common sense to say that the clause provided for a very limited level of release, but that, with respect, is not quite the way to look at the matter. If a clause is capable of two meanings, as on any view this clause is, it is quite possible that neither meaning will flout common sense. In such circumstances, it is much more appropriate to adopt the more, rather than the less, commercial construction.”

30 In my opinion Longmore LJ has there neatly summarised the correct approach to the problem. That approach is now supported by a significant body of authority. As stated in a little more detail in para 21 above, it is in essence that, where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense. For these reasons I prefer the approach of the judge and Sir Simon Tuckey to that of Patten LJ, which is to my mind significantly different on this point.”

With this approach in mind, Mr Pepperall submitted, a construction compliant with the Conduct Regulations, over a construction which would render the Conditions unenforceable, and therefore pointless, is appropriate.

Having regard to the construction of clauses 6 and 10 of the Conditions, and these principles, Mr Pepperall maintained that:

Mr Pepperall submitted that there was nothing uncertain about the provisions concerned, when set in the context of the contract as a whole, the facts and circumstances known to the parties, and commercial common sense. He relied upon the decision of the Supreme Court in Arnold v Britton [2015] AC 1619, at para 15, and submitted that my task is to construe the document according to the ordinary canons of construction and then to determine whether the document as so construed is void for uncertainty, citing Lewison, The Interpretation of Contracts (6^th Ed), para 8-11. Mr Pepperall advanced a number of general propositions:

Mr Pepperall then turned to the clause in this case. The high threshold to justify finding a clause to be void for uncertainty is “far from being met” in the present case, particularly where the contract of which it forms part is being construed long after the parties have executed it. It is not difficult, he submitted, when reading clause 6 together with clause 9 of the IPS, to identify an appropriate methodology to give effect to the objective intention of the parties as to the calculation of the transfer fees, a point that he developed later in connection with issue 2(iii).

As for the decision in Mayer,Mr Pepperall argued that it is “of no real application” to the present case, for a number of reasons:

Finally, as to the “void for uncertainty” argument, Mr Pepperall submitted that there is a saving provision in clause 3.5, which provides for what is to happen if there are “exceptional circumstances… where an annualised pay figure cannot be determined at outset”. In that situation:

As for Lavarack, Mr Pepperall submitted that it had no application to the present case because it was concerned with the assessment of damages following a breach of contract, whereas the present case is concerned with the quantification of an agreed contractual fee, following a trigger event (not amounting to a breach), and there is no “minimum obligation” in the relevant contract.

Mr Pepperall concluded his submission, on this part of the case, by saying that the present contract “specifically provides tiers of calculation methodology … with each successive tier kicking in if/when the one before it fails”, whereas in Mayer the contract contained only a single calculation method.

There is no doubt that the Conditions are not well drafted. They are badly set out and structured, ungrammatical, and the syntax is poor. However, parties are not to be deprived of the benefit of their agreements because the manner in which they have chosen to express themselves would not pass muster as an exercise in English composition. As Lord Upjohn put it in Whishaw v Stephens (sub nom Re Gulbenkian’s Settlement Trusts) [1970] AC 508, in a passage cited in Lewin at para 8.11:

“There is no doubt that the first task is to try to ascertain the settlor’s intention, so to speak, without regard to the consequences, and then, having construed the document, apply the test. The court, whose task it is to discover that intention, starts by applying the usual canons of construction; words must be given their usual meaning, the clause should be read literally and in accordance with the ordinary rules of grammar. But very frequently, whether it be in wills, settlements or commercial agreements, the application of such fundamental canons leads nowhere; the draftsman has used words wrongly, his sentences border on the illiterate and his grammar may be appalling. It is then the duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlor’s or parties’ expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to the language if it can do so without doing complete violence to it. The fact that the court has to see whether the clause is ‘certain’ for a particular purpose does not disentitle the court from doing otherwise than, in the first place, try to make sense of it.”

It is not necessary for me to repeat, or to any significant extent expand upon, the authorities to which counsel referred for the purposes of demonstrating the reluctance of the courts to hold agreements to be void for uncertainty. I will, however, refer to one modern authority in this respect, which I consider has a particular relevance in the present case, namely Whitecap Leisure Ltd v John H Rundle Ltd [2008] EWCA Civ 429, in which Moore-Bick LJ (with whom both Ward and Wall LJJ agreed) said at para 21:

“The conclusion that a contractual provision is so uncertain that it is incapable of being given a meaning of any kind is one which the courts have always been reluctant to accept, since they recognise that the very fact that it was included demonstrates that the parties intended it to have some effect.”

In relation to issues of construction I keep firmly in mind the observations made by Lord Hoffmann in BCCI at para 37 of the dangers of giving “too little weight to the actual language and background and [relying] unduly upon the expressions of judges used in other cases dealing with different documents.”

Mr Pepperall, in reply, stressed the importance of considering the contractual provisions in this case in their setting, and not unduly relying upon interpretations of similar, but not identical, wording in other cases (he referred in particular to Mploy and Mayer), where the contextual setting was different. He was right to do so.

In my judgment, it is very clear that both parties in this case proceeded on the expectation that introduction and transfer fees would be payable to FPS in circumstances in which staff supplied as temporary workers by FPS to Halfords were taken on by Halfords as staff, and in such other circumstances as might be defined by the Conditions. The provisions of clauses 6 and 10 were of longstanding in the dealings between the parties, and, in my judgment, it is clear from the briefest perusal of the Conditions that there was an intention that such provision should be made. Taken by itself, this would, of course, be an inadequate basis for any recovery on the part of FPS, because FPS has to demonstrate that there was a contractual provision of sufficient certainty which would entitle it, in defined circumstances, to a transfer fee, and that those circumstances have arisen.

The parties made their agreement against the background, available to them both, of the Conduct Regulations, and the DTI Guidance, both of which recognise the industry feature of the charging of transfer fees; the purpose of the Regulations, according to the DTI Guidance, is to ensure that employment businesses do not use transfer fees unreasonably as a means of discouraging, or deterring, hirers from offering work to temporary workers, or having those workers supplied through a different employment business (see para 1 of the Guidance). However, the Guidance also expressly recognises that employment businesses should be allowed to protect their legitimate business interests. All of this points to the conclusion that transfer fees are a feature of the industry, and to be expected in terms relied upon by an employment business. Further, in this case, there is no doubt that both FPS and Halfords, in the course of their own respective businesses, and for different reasons, had considered the terms of other and rival employment businesses, many of which were in evidence before the court, and all of which made provision in respect of transfer fees.

Whilst each of the charging provisions, and liability to pay a fee under them individually must be considered, it is also important to consider not only the Conditions as a whole, but also the charging provisions as a whole. In particular, this is because such consideration will afford guidance as to whether, in any specific factual situation, the parties are likely to have regarded any particular clause to have been applicable.

The arrangements in the present case, whereby the Workers concerned were at one time supplied to Halfords by FPS, and then by Staffline, are to be categorised as a temp-to-temp transfer in the language of the DTI Guidance. As Mr Casey submitted, as such, they fall within the second scenario described in para 2 of the Guidance, which unlike the other two scenarios, does not contemplate an “introduction” in the process; rather there is a temp-to-temp engagement following such supply. Indeed, it is, as the transfer in Mploy was described (at para 109, in a passage cited by Mr Casey), a “paradigmatic” temp-to-temp transfer in the terms of para 5 of the DTI Guidance. The substance of the transaction was that Halfords decided to engage in a retendering process, in which Staffline made a successful bid. It was a result of that successful bid by Staffline that workers were transferred to it.

In my judgment, however, these considerations do not, by themselves, lead to the conclusion that what occurred cannot be categorised as an “introduction”. The ordinary meaning of “introduce” (see the Oxford English Dictionary, 2^nd edition, 1989) includes leading a person into a place, position, circle, or things. Without the benefit of any authority on this point, I would be inclined to accept Mr Pepperall’s submission that by setting in motion the retendering process with Staffline, this led the workers into the position of being transferred to Staffline, following a meeting at which they were addressed by Staffline, so that, without straining language at all, there was an introduction. There is some, albeit limited, support for this view in the decision in Mayer. In that case, too, it was argued before the trial judge that there had been no introduction to Tudor because it was the workers’ own choice to be taken on by the new agency; there was a factual dispute (resolved by the judge against CRS) about whether the workers had been told to sign and register with Tudor if they wanted to keep their jobs. Judge Elystan Morgan held that there had been an introduction. The point, however, does not seem to have been pursued on appeal, and from the report it is not entirely clear as to whether the issue as to whether there had been an introduction turned on the factual dispute described. I reach my conclusion that there was an introduction in the present case without placing reliance upon the decision in Mayer, but upon the circumstances of the present case, and the language used in the Conditions.

Notwithstanding that I have resolved the issue of whether there was an introduction in favour of FPS, I am not satisfied that the transaction in this case fell within clause 6(i), which was designed, I consider, to cater for temp-to-perm, or temp-to-third party transactions, and not temp-to-temp transfers. First, this is because clause 10, for reasons I express below, was designed to cater precisely for the kind of temp-to-temp transfer which took place. Since the parties addressed the mischief of transfer to another employment business in clause 10, it seems to me hardly likely that they also intended that it should be addressed more than once in the same agreement, irrespective of whether or not engagement of more than one trigger arising from the same transaction would give rise to liability to pay a fee more than once. Reluctance to accept that there should be duplication of provisions was an important factor in Mploy (see para 106 of the judgment in that case), as Mr Casey mentioned in his submissions. I add, however, that whether or not double (or triple) provision, under all of the charging provisions, would result in a double (or triple) liability (as concerned the judge in Mploy), it seems to me unlikely that the parties should have intended to make provision two, or three, times over for liability to arise from the same transaction. Further, I am not satisfied that multiple fee liability would arise on the wording of the Conditions, which are significantly different from those in Mploy, where the liability to pay a particular fee was stated under each charging provision. In the present case, whether under clause 6(v), or clause 10, the liability for a fee, or the option to elect for an EPH, is directed to what Mr Pepperall has called the “engine room” of clauses 6(ii) and (iii); if he were right, though I have rejected his submission on clause 6(i), there would also be liability under that clause, but similarly directed to the “engine room”. In my judgment, properly interpreted, even if liability to a fee could arise under different clauses from the same triggering event, as a matter of common, and commercial, sense the parties would not have intended that there should be more than one liability to pay the fee.

Secondly, I consider clause 6(i) to be inapplicable to the present case because it envisages that the Client, or “other person” employs the worker; this language is appropriate to a new engagement of a worker, rather than accepting the transfer of a worker pursuant to TUPE. (For the avoidance of doubt, as I explain more fully below, I am not suggesting by this that a TUPE transfer cannot give rise to a liability to pay a transfer fee.) I have not reached my conclusions on this point on the basis of Mayer,upon which Mr Casey placed considerable emphasis. As appears from the judgment of Mummery LJ (with whom both others members of the Court of Appeal agreed), the conclusion on what was called “the Employer Point” in that case turned very much on the particular wording of the terms there applicable (“Employer/Client”, which could not refer to an agency/employer).

In my judgment, clause 6(i) does not apply to the kind of temp-to-temp transfer that occurred in this case. Had I reached a different conclusion on this issue, FPS’ reliance on the clause would in any event have run into difficulty because of the operation of Regulation 10 of the Conduct Regulations, for reasons that I explain below.

For substantially the same reasons, I consider that clause 6(v) does not apply to the transfer which occurred in this case. I consider that the clause is directed to a temp-to-third party transfer. There is no mention of subsequent retainer by the Client. As with clause 6(i), if it is the case that it is construed as extending to the transfer that occurred in the present case, it would be duplicative of the provision made under clause 10. I do not consider that the parties would have intended such a result for the reasons expressed above in relation to clause 6(i). There is the same problem in relation to the concept of “Engagement” (the word “employs” is not used this time), which I consider suggests new employment rather than accepting a worker pursuant to a TUPE transfer.

In my judgment, this clause, as Mr Casey accepted, envisages a temp-to-temp transfer, which is how the transaction concerned should be classified. However, I reject his submission that the clause does not apply where there is a TUPE transfer because it cannot be said that Halfords “retained” the workers as “introduced or supplied” by Staffline. The Workers, in my judgment, were retained in the sense that they were kept on, and though they were not introduced by Staffline, they were supplied by them. Mr Casey suggested that the drafting could have been improved to make clear that the clause should apply in the event of a TUPE transfer, especially, he said, since the Conditions were drafted by a member of the Board of REC, which was involved in the production of the DTI Guidance. However, the expressed view of the REC, set out above, is that the matter is determined by the contractual terms, and whether TUPE transfers have been excluded. They were not in this case. I bear in mind that this guidance simply represents REC’s view, and did not form part of the material available to both parties when the contract was made. I find that the issue is determined by the contractual terms, and, provided that the terms are so drafted that a transaction taking effect under them falls within the provisions of the terms, a transfer will not be excluded merely because it takes effect under TUPE. Without making express reference to TUPE, terms could, of course, be so drafted that a TUPE transfer would not qualify as a “trigger event” for the entitlement to a fee, but the terms did not so provide.

Clause 10 operates in conjunction with clause 6, as to the payment of a transfer fee, or the election of an EPH. I deal with Halfords’ case on other issues which affect both clauses under Issue 1(b).

Subject to conclusions that I reach on Issue 1(b), I find that a transfer/introduction fee is payable under clause 10, where Workers are transferred from one employment business or agency to another under a TUPE transfer (as here). I reject the suggestion of ambiguity, specifically in relation to clause 10. I do not consider that because Matthew Reddy, or Laurence Reddy, may have misconstrued their own company’s documents this makes it impossible to give a proper meaning to clause 10, or, indeed, those parts of clause 6 that must be read in conjunction with it.

I shall consider each of the sub-issues separately.

The liability to pay transfer fees, or elect for an EPH, was not hidden from Halfords, a substantial organisation with the resources to devote to consideration of the terms on which it dealt with suppliers. The liability appeared on the front page of the Conditions, and the charging, and related, provisions occupied a significant proportion of the text. I accept Mr Reddy’s evidence, which is supported by that from Mr Goode, that copies of the terms in use from time to time were provided to Halfords’ team that negotiated business with FPS. There is material to suggest that Halfords was actually aware of the existence of transfer fee provisions, as the topic was mentioned in an e-mail dated 27^th October 2005 from Mr Shirley to Alison Cross; the subject matter was “First Personnel Meeting”, and the point was mentioned in the context of “Standard terms of business”.

The practice of charging transfer fees is well established in the employment business industry, a fact well-demonstrated by the fact that the Conduct Regulations specifically intervene to strike a balance between the protection of legitimate business interests of such organisations, and the need for flexibility of movement of staff and suppliers in the employment market. I need not elaborate on the fact that there is the detailed DTI Guidance on the topic, save to say that it does not suggest that TUPE transfers are not usually the subject of any such fees; it is silent on that point. The REC Guidance also contemplates charging upon a TUPE transfer. Having considered Staffline’s terms, those also seem to give rise to a liability to pay such fees on a TUPE transfer, and yet the transfer to Staffline was effected at a time when Halfords, with Mr Gardner’s assistance, were studying issues in relation to temporary workers very carefully.

Halfords does not dispute that transfer fees are a feature of the engagement of temporary workers; Alison Muir’s evidence conceded as much, but she added that she had never known a situation in which such fees were payable on the transfer of Workers from one agency to another. She developed this point by saying that in such a case the employment agency concerned would have already been paid the equivalent of a fee if the temporary worker had been working for the client for a number of weeks.

I do not consider that the Conditions, even though they provide for transfer fees to be payable in the event of a TUPE transfer, prohibitively penalise someone in Halfords’ position, rejecting, as I do, the suggestion that such fees have to be paid even when there is an election for an EPH. The arrangements, in my view, are not punitive. The transfer fees can be avoided by electing for an EPH, and the transfer to another agency could have been timed so as to avoid transfer fees altogether. It was Halfords’ decision alone to set the date of termination with FPS as 22^nd December 2011. The evidence, in my judgment, demonstrated that an employment business is vulnerable on a TUPE transfer, to the loss of a substantial investment that it may have made in terms of recruiting, training, and setting up systems in respect of a substantial number of workers. The loss to the employment business on a TUPE transfer is abrupt (unless there is an EPH election) and significant, as it is in the case of the client’s taking on temporary workers to its own staff. A TUPE transfer could, at a stroke, deprive an employment business of a large proportion of its revenue.

I do not consider that clause 10 of the Conditions, operating in conjunction with clause 6, was onerous or unusual. Further, (1) I find that the terms were brought to Halfords’ attention over the course of dealing between the parties over many years, (2) I find that Halfords was aware that transfer fees were included in the terms, and (3) I accept the undisputed evidence as to the widespread imposition of transfer fees in the industry.

This sub-issue and the next are to an extent intertwined, because ascertainment of the effect of the contractual provisions needs to be considered so that analysis of whether those provisions are compliant with the Conduct Regulations can be considered.

In light of my findings above that it is only clause 10 under which a transfer fee could be charged, it is not strictly necessary for me to consider whether the charging provisions under clause 6(i) and 6(v) are unenforceable under the Conduct Regulations. Nonetheless, since the matter was fully argued, I will do so.

Clause 6(i) in my judgment does not satisfy the requirements of Regulation 10. It imposed liability to pay a fee without any linkage at all to a provision that stipulated that instead there could be election for an EPH. I do not regard it as possible to link the provision to clauses 6(ii) and (iii) because there is no reference at all to those provisions, and, moreover, clause 6(iii) also provides for the payment of a transfer fee, as does clause 6(i). Clauses 6(ii) and (iii) are expressed as alternatives to each other, but not to 6(i).

Clause 6(v) does not offend the Regulation 10 in my judgment. It refers back to clause 6(iii) which provides for a transfer fee as an alternative (because of the “or” at the end of clause 6(ii)) to paying an EPH under clause 6(ii). I do not consider that it matters that one alternative is mentioned before the other. Clause 6(v) itself also makes clear that the fee can be avoided by election of an EPH. Clause 6(v) is, however, unavailable to FPS as the basis of a claim in this case for reasons which I explained above when considering Issue 1(a).

Turning now to clause 10, this makes provision for a fee to be paid which is to be calculated “in line with clause 6 of this contract”. This gives rise to issues of uncertainty of meaning, as well as whether an EPH election was offered. In my judgment, this provision is a direction back to Mr Pepperall’s “engine room” of clauses 6(ii) and (iii). Clause 10 suggests this because the reference would not be to clauses 6(i) or (v) because those provisions are in themselves charging “trigger” provisions. Similarly, other sub-clauses within clause 6 are inapplicable; clause 6(iv) deals with adjustments to fees depending upon length of term of engagement, clause 6(vi) deals with definitions, and clauses 6(vii) and (viii) with election for EPH or the breakdown of such arrangement, whilst clause 6(ix) deals with notification requirements.

Importantly, however, clauses 6(ii) and (iii) do address transfer fees with the election for an EPH, so the EPH election was available. It is only once an EPH has been elected that clause 6(vii) becomes engaged, as is apparent from the opening words of its provisions – “If the [EPH] is elected …”. It identifies the duration of the EPH by reference to the number of weeks that a Worker has worked.

Both Mr Pepperall and Mr Casey submitted that there is a plainly mistaken reference in clause 6(viii), where the reference to “6.viii” must have been intended to refer to a provision within clause 6, other than clause 6(viii) itself. That must be right. They differed, however, as to what was the intended reference, Mr Pepperall arguing for clause 6(vii), and Mr Casey for clause 6(iii). I consider that Mr Pepperall was right; there is a natural connection between the subject matter of clauses 6(vii) and 6(viii), namely, what happens if there is an EPH election. This is apparent from the opening words of both provisions. Clause 6(vii) specifies the “following scale of fees” if there is an EPH election, and clause 6(viii) deals with what is to happen if the EPH arrangements break down. Under Conduct Regulation 10(3), although generally transfer fees are not chargeable where the employment business does not supply the worker for the duration of the EPH, this does not apply where “the employment business is in no way at fault”; on this point, see also para 11 of the DTI Guidance. With this in mind, clause 6(vii) makes sense; the column within that provision headed “Transfer Fee” simply gives the percentage of such fee payable (ascertainable from IPS clause 9, I consider) upon the breakdown of an EPH, based upon the number of weeks that have been worked before the breakdown occurs. Clause 6(iii), by contrast, was not concerned with an EPH election, but with payment of a transfer fee where there had not been such an election.

The “accompanying scale of fees” referred to in clause 6(ii), properly interpreted, I consider, is the scale in IPS clause 9; that does indeed set out a fee scale by reference to pay and a percentage of “total annual commencing salary”, whereas clause 6(vii) does not. If the reference in clause 6(ii) to the “accompanying scale of fees” was to clause 6(vii), the transfer fee would not be calculable, because there is no indication, within that provision, of the sum by reference to which the transfer fee is to be a percentage. If reference to “6.viii” in clause 6(viii) was intended to be to clause 6(vii), then the transfer fee payable upon a breakdown of an EPH does reduce over time to reflect the period worked, which seems appropriate. No such reduction, rather surprisingly, would be afforded if the reference were to clause 6(iii).

There was not, therefore, as Halfords’ case suggested, a failure to specify which of the two different methods for calculating fees (IPS clause 9, or 6(vii)) should be applied. Only one method was specified, namely IPS clause 9, with an option to elect an EPH, and if the latter was chosen then the provisions of clause 6(vii) applied, but if the EPH broke down through no fault of FPS, then the provisions of 6(viii) were to apply.

In light of these conclusions as to the correct interpretation of clauses 10, 6(ii) and (iii), and as necessary 6(vii) and (viii), I find that clause 6 and/or 10 are not unenforceable under Regulation 10 of the Conduct Regulations.

At the forefront of Mr Casey’s submissions on this sub-issue was the decision of the Court of Appeal in Mayer. In that case, clause 3, the clause dealing with the calculation of the fee, was in these terms, as appears from the judgment of Mummery LJ:

“The fee payable to the Agent by the Client for the introduction of an applicant is calculated on the annual commencing gross taxable pay and taxable emoluments payable by the Client to the applicants set out in the Scale of Fees shown below. VAT shall be paid in addition.

[A table sets out the scale of fees, taking a specified percentage of 'Total Annual Remuneration']”

In understanding the decision in Mayer,it is critically important to have regard to what Mummery LJ said of the interpretation of this clause when he was considering what he called “the employer point”:

“Clause 3 expressly refers to pay and emoluments "payable by the client to the applicant", the applicant in this case being staff. That provision works in the case of an employer/client, such as CRS, or a subsidiary of CRS, or another employer client who directly remunerates staff by making payments to applicant staff. That provision does not, however, work in the case of another employment agency, such as Tudor. In such a case the employer/client does not pay anything to the applicant staff. The agency pays the staff. The employer/client, who hires the temporary workers, pays the agency.”

In light of Mr Casey’s submission, it is necessary to give the context of the submission which was before the court, and so I set out the relevant part of Mummery LJ’s judgment in full:

“The employer point is closely connected with the point on the calculation of the introduction fees, to which I now turn. Mr Stembridge [leading counsel for the plaintiff] challenged the conclusion of the judge that the provision for the calculation of the introduction fee, as paid to the temporary workers, was void for uncertainty. In recognition of his difficulties with the language of clause 3, Mr Stembridge said that the legal solution was in implicit or implied terms. He referred us to the principles set out in Chitty on Contracts 27th Ed, Vol 1, page 619 at paragraphs 13-002 - 13-003. He argued, first, that the agency, Tudor, should be substituted for the reference to "client" in clause 3, as it was Tudor which was actually paying the remuneration to the temporary staff. The important point in the calculation of the introduction fee, in accordance with the tables in clause 3, was what remuneration was paid to the applicant staff, what they received, not the identity of the person by whom the remuneration was actually payable. That was what the parties intended. The introduction fee was to be a percentage of the total annual remuneration of the workers. That remuneration did not have to be agreed in the form of an annual sum. It could be annualised from what had been agreed to be paid by the month, by the week or even by the hour. Mr Stembridge argued that his case presented no difficulty. Tudor paid the temporary workers remuneration at the rate of £2.60 an hour. The number of hours should be taken as those worked in the commencement week of the relevant temporary worker. This should be taken as 40 hours a week, in the absence of information provided on this point by CRS. It would then be possible to multiply £2.60 an hour, by 40 hours a week, by 52 weeks a year. That would produce the annualised sum to which the relevant percentage could be applied to arrive at the introduction fee. Mr Stembridge said that it was all a matter of arithmetic, and that the wording of the agreement presented no substantial difficulty.

I reject this approach. The alluring journey, which Mr Stembridge invited us to set out on for the calculation of the introduction fee, goes way beyond the legitimate excursions into the implied and implicit forbidden and dangerous territory of invented and imagined contractual obligations. In my judgment, the agency has failed to show that on their true construction, its own terms and conditions provide for a certain, applicable and workable means of calculating an introduction fee in this case. The fact is that, on the ordinary and natural meaning of the language of clause 3, which applies in the case of Permanent Staff without difficulty, it is impossible to apply it, without juggling the words, to reach a sensible result in the case of Temporary Workers. It is simply not possible to say that any remuneration is payable by the employer/client to the staff/applicant in the case of temporary workers who have transferred their allegiance from the agency to Tudor. There is no base on which a calculation under clause 3 can be made. It is not legitimate simply to substitute Tudor for the reference in that clause to a "client".

It is also relevant to note that the temporary staff worked for different periods of time, daily and weekly. There is a wide range of hours worked by them. It is not possible, on the findings of fact by the judge, to say that 40 hours a week would be a relevant figure to take. I agree with Mr Randall QC, who argued the case on behalf of CRS, that the different ways in which the implied term for the calculation of the fees has been proposed at different stages of the proceedings is a strong indication of the difficulties in the agency's case. It strongly suggests that the whole exercise of the implied term

cannot be properly undertaken in order to give clause 6 the effect which the agency wishes to give it for the fee calculation under clause 3.”

[Emphasis added]

For completeness, with regard to the topic addressed in the last paragraph of this passage, I consider it necessary also to record that, earlier in his judgment, Mummery LJ had said:

“In dealing with this point [that is evidence as to working hours] the judge referred to documentary evidence showing that the hours in fact worked by temporary workers varied enormously from 10 hours or less in some cases, to 45 and 48 hours in other cases. He indicated that there was no direct evidence before him that 40 hours a week was the norm for temporary workers.”

It was the passage which I have emphasised above upon which Mr Casey placed particular reliance. It seems to me that the paragraph containing that passage was, for the most part, addressing a different point from that which arises in the present case, namely the difficulty of substituting Tudor for “client”; this is clear from the passage which immediately follows the text which I have emphasised. Save that Mummery LJ’s statement that it was for the agency to show “that on their true construction, its own terms and conditions provide for a certain, applicable and workable means of calculating an introduction fee”, I do not consider that passage addressed the problem present in this case of annualising remuneration “from what had been agreed to be paid by the month, by the week or even by the hour”. It is, rather, the final paragraph of the longer passage from the judgment which I have set out above that addressed that point.

In these circumstances, it seems to me that Mummery LJ’s observations on the invitation to annualise from what had been paid by the week, month or hour were based upon the fact that temporary staff worked for different periods of time, daily and weekly, that there was a wide range of hours worked by them, and that upon the trial judge’s factual findings it would not have been possible to say that 40 hours per week would be the relevant figure to take. They were not formulated so as to suggest an outright objection as a matter of principle to annualising remuneration in any case of this kind. The rejection of the suggested method of calculation, I consider, was fact specific to the case, and I note that Mummery LJ, earlier in his judgment, mentioned that the contract with Tudor did not impose any obligation on Tudor to provide any work for its work force, but merely to provide opportunities to work. The question is, then, whether a certain, applicable, and workable means of calculating a fee has been demonstrated in this case.

In my judgment, this case can be distinguished from Mayer in three important respects:

In my judgment, the Conditions, by the operative provision of clause 10, do by reference through clause 6, direct a payment in accordance with IPS clause 9. That is the scale of fees applicable, as is expressly apparent from clause 6(i), although no fee is recoverable under that clause itself. I consider that Mr Pepperall was right to submit that when considering a fee as provided in the IPS, then it is also permissible and necessary to consider the provisions of clauses 3.4, 3.5 and 3.9 thereof. For this purpose, it was not necessary that an “Introduction” as defined in the IPS preceded an “Engagement” as defined therein; the whole structure of the Conditions was that a fee should be calculated in accordance with clause 9, not that it had to arise under the IPS following an “Introduction”. This is important when considering the operation of IPS clause 9 generally.

The Conditions, in my judgment, envisaged that the normal procedure for ascertaining pay from which “Remuneration” (IPS 3.4), and “annualised pay” (IPS 3.5) would be determined, would be to take the pay rate for an individual concerned, and annualise it. I reach this conclusion because of the express provisions of IPS clauses 3.4 and 3.5; the wording of clause 3.5 treats the not being able to annualise a pay figure as an exceptional circumstance, implying that annualising is to be generally expected. The operation of clause 3.5 is not conditional upon agreement between the parties. The necessity for agreement arises only where an annualised figure cannot be determined from the outset.

The meaning of “annualised pay” in this context does, however, require further consideration. In a simple situation in which Workers actually did, normally, undertake a particular number of hours work in a week (FPS contends 37.5 hours), it would be appropriate to take the applicable hourly rate paid to each Worker, multiply it by 37.5, and then annualise by multiplying by 52. Where, however, it is clear that such hours and weeks do not represent the norm, it would be inappropriate to adopt such a method of calculation, because such an approach could overstate, or understate, the position. I return to this topic below, when considering Issue 2(iii) at paras 146-156.

The conclusion that I have reached is that provided there is evidence which enables annualised pay, that is pay over the course of a year for a Worker in the position occupied, to be calculated, this will suffice for the purposes of clause 3.5. (This leaves a further issue, which I shall deal with when considering quantum, as to the identification of the year which is to be used as a base for the calculation.) This will be the case even though the calculation might not be undertaken on the basis of multiplying a set number of weekly hours multiplied by 52. If it is not possible to ascertain remuneration on this basis (and applicable remuneration levels cannot be agreed), then resort may be had to clause 3.9, which directs attention to the “minimum level of remuneration applicable for the position in which Applicant engaged”. If that position provided work of, say, 30 hours per week, over 40 weeks of the year, that reality would have to be the basis of calculation. Neither clause 3.5 nor clause 3.9 requires assessment to be undertaken on the basis of a fictional number of hours per week, or weeks per year, whether at the level of 37.5 hours, 52 weeks, or otherwise.

This analysis answers, in my judgment, Mr Casey’s points with regard to “annual commencing salary”, which is not directly applicable on a TUPE transfer (because of continuity of employment), and payment by reference to hours worked rather than a specified stipend; clauses 3.5 and 3.9, wherever there might be a difficulty of ascertainment, provide mechanisms for ascertaining “annual commencing salary”, for the purposes of IPS clause 9, where a Worker is not employed on a conventional salary with a stated level of remuneration annually, where all that might be required for ascertainment would be to look at the individual’s contract of employment.

However, independently of quantum issues, there remains the further, and important issue of principle, which it is convenient to consider at this point, and that is the impact, if any, of the minimum number of hours guaranteed annually to a Worker by Staffline.

In the passage in Diplock LJ’s judgment in Lavarack cited by Mr Casey, the learned lord justice, as he then was, said at page 294:

“The general rule as stated by Scrutton L.J. in Abrahams v. Reiach (Herbert) Ltd. (Footnote: ¹), that in an action for breach of contract a defendant is not liable for not doing that which he is not bound to do, has been generally accepted as correct, and in my experience at the Bar and on the Bench has been repeatedly applied in subsequent cases. The law is concerned with legal obligations only and the law of contract only with legal obligations created by mutual agreement between contractors - not with the expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do. And so if the contract is broken or wrongly repudiated, the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money's worth if the defendant had fulfilled his legal obligations and had done no more.”

(Emphasis added)

The emphasised passage, in my judgment, represents a statement of general principle which is not limited in application to cases concerned with the evaluation of damages, whether in wrongful dismissal cases or otherwise. However, on reflection, it seems to me that the principle is not in play for the purposes of the present exercise. This is because what clauses 3.4, 3.5 and 3.9 are directed at is the ascertainment of what a Worker would be paid in a particular position if their pay rate were to be annualised. This becomes very clear from the provisions of clause 3.9; the calculation is to be by reference to “remuneration applicable for the position in which Applicant engaged” (sic). The decisive consideration, contractually dictated by the clauses mentioned, is annual remuneration for the position, not the entitlement of the particular Worker who, at any moment, happens to be performing the tasks required by that position. I therefore reject Mr Casey’s submission that the approach, which commends itself to me, involves an excursion into the “dangerous territory of invented and imagined contractual obligations”. No contractual rights for Workers are being invented or imagined, nor are any such reciprocal obligations imposed upon anyone using or employing them. What the Conditions require is consideration of notional annual remuneration for a Worker in a particular position.

Finally, before moving to consider Issue 2, and in deference to the great care with which Mr Casey took me through the decision in Mploy, whilst I have paid close regard to the submissions which he made about that case, as well as to the illuminating judgment of the deputy judge who decided it, in my view the contractual provisions with which that case was concerned were significantly different from those in this case. In that case, for example, there was an express provision that, where the amount of “Remuneration” was not known, the transfer fee should be the relevant hourly charge multiplied by 300. No such provision was contained in the Conditions in this case.

I have reached my conclusions with regard to the construction of the clauses concerned without needing to resort to the principle formulated at para 7.11 in Lewison. If I had been in doubt as to the matter, I would have considered it appropriate to prefer an interpretation which rendered the provisions enforceable. In BCCI v Ali Lord Hoffmann said at para 39:

“The background is however very important. I should in passing say that when, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 , 913, I said that the admissible background included "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man", I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage: "we do not easily accept that people have made linguistic mistakes, particularly in formal documents". …”

In my judgment, it would have been clear to anyone who considered the operation of the Conduct Regulations against the provisions of the Conditions, that the Conditions were intended to take effect in such a manner as to comply with the requirement of the Regulations, so that the Conditions would be legally effective. The provision for the option of electing for an EPH is, I consider, decisive in this regard.

If introduction / transfer fees are due:

The dispute relates to the number of Workers that transferred to Staffline from FPS, namely, whether it was 190 Workers as FPS alleges, or a smaller number as suggested by Halfords.

The evidence on this issue can be summarised briefly. On FPS’ side, Mr Reddy maintains that invoices were raised in respect of all 190 Workers who transferred on 22^nd December 2011, maintaining that no notice from any Worker was received whereby objection to the transfer was given. Mr Pepall’s evidence confirmed the absence of any notice of objection, and the raising of the invoices in relation to 190 Workers. No evidence of any objection’s having been made has been adduced by Halfords.

Halfords relied on the evidence of Mr Turner as set out in his witness statement. This was based on an “Infinity” timesheet for the week of 22^nd December 2011. Mr Turner asserted that the records were maintained by Staffline employees, following reports from Halfords, and that if an individual was not included in the list, then they had not transferred to Staffline. He acknowledged two exceptions; one lady who was on maternity leave, and another whose status had changed from that of temporary worker to ancillary worker, the latter still being employed in a permanent administrative role. However, Mr Turner in cross-examination accepted that the report related to Christmas week, showed only those who worked, and not those who took holiday. He conceded that Workers would not have been required to work on the two Bank Holidays of that week, and that Halfords’ labour requirements drop off in a period so close to Christmas, when Workers would be expected to take holiday. He acknowledged that the week was not typical, and that it was possible that someone who had transferred to Staffline was, for some reason, not on the sheet.

Some weeks after Mr Turner first gave evidence (it had not been possible to hear the case continuously from the commencement of the trial), I gave permission for Mr Turner to be recalled because Halfords requested Staffline to produce timesheets for January 2012. I gave my reasons for permitting this course at the time. He produced the additional timesheets by reference to a witness statement prepared by a colleague, but he explained that it was he, Mr Turner, who had printed out the additional timesheets. Mr Turner gave evidence-in-chief that with the exception of one Worker, Mr Daniel Francis who should be added to the previous exceptions, Mr Turner adhered to his previous assertion as to the non-transfer of staff whose names did not appear in the time sheets. Whilst he conceded in cross-examination that he had not searched the records to look for the names of missing Workers, he maintained that it was not an explanation for their absence from the list that they were working for Staffline but not for Halfords; he said that each individual was assigned to a particular site, and further that the period of absence was too long to be accounted for by their working for Staffline but not for Halfords.

Mr Pepperall, rightly in my judgment, accepted in his oral closing submissions, that if FPS succeeds in claiming a fee only pursuant to clause 10 of the Conditions, then if, in light of the timesheet evidence, it is found to be the case that 25 of the 190 individuals concerned were not retained by Halfords, then no transfer fees can be claimed in respect of those 25; this is because the clause requires such retention by Halfords upon supply by an agency or body other than FPS. Mr Pepperall was realistic in his submission. He accepted that the then freshly disclosed evidence in respect of the January timesheets weakened his submission that the claim should extended to all 190 Workers. However, he was critical of Halfords’ case which relied on the timesheets, pointing out that the time period chosen was still relatively short, covering January 2012, but not a longer “incontrovertible” period of three months. He also pointed to the absence of P45 evidence that following a TUPE transfer the Workers concerned ceased to work for Staffline.

Not surprisingly Mr Casey placed much reliance on the January timesheet evidence in support of his submission that 25 Workers did not work for Staffline throughout the whole of January; this, he submitted, disproved any suggestion that Workers were missing from the timesheets because of the Christmas break.

Whilst I consider that there is some force in what Mr Pepperall says as to the limitations of the evidence as to the number of Workers who are said not to have been retained by Halfords after the transfer to Staffline, and it is possible that some did return to work for Halfords after January 2012, I am concerned with the balance of probabilities. The January timesheets are the best evidence available, and I find them compelling. For me to make any allowance as to a number of Workers who might have returned at some later time would involve, as Mr Casey submitted, my making “arbitrary assumptions”. I am not prepared to do so.

FPS’ claim is limited to the 165 Workers who are demonstrated to have been transferred to Staffline, and to have been retained by Halfords.

There is no issue between the parties that as a matter of principle credits may be claimed by Halfords in respect of any Workers who left in the first six weeks following the transfer to Staffline; IPS clause 9 so provides. On this aspect of the claim for credit, the issue is, therefore, purely factual. However, Halfords also claims credits under clause 6(vii) of the Conditions; as a matter of principle, FPS disputes that there is any such entitlement at all.

As for the factual issue as to who left within the six-week period, and when (which is relevant to the percentage of credit due under IPS clause 9), Halfords’ case is set out in para 20.2 of its Re-Re-Amended Defence and Counterclaim. It is that 27 Workers left; each of them is identified, as is the period during which it is said that they left. The evidence in support of the claim for credits is contained in para 7 of Mr Turner’s written evidence, upon which he was not challenged. He referred to a three-page Infinity print-out.

Mr Pepperall was critical of this evidence, fairly pointing out that the document produced did not explain clearly what it was, simply being headed “Contractors – Start and Leave Date”. He also pointed out that the document did not record when a Worker ceased working for Halfords as opposed to Staffline, and Mr Turner’s evidence did not assist with the point. Mr Pepperall identified some anomalies in the schedule produced. For example, some Workers are shown as having been “on plan” on 18^th or 19^th December 2011, which was prior to the transfer on the 22^nd of the month. Others are shown as having been “on plan” several days after the transfer. Several are shown as having a last day “on plan” several days before the transfer took place; for example, Mr John Benford on 18^th December 2011. The schedule, in a number of instances, is contradicted by the evidence of Mr Turner who said that it identified Workers who had left within six weeks of the transfer to Staffline. The Schedule actually records several workers who were “on plan” long after that; for example, Mr Ryan Mark on 17^th June 2012. In my judgment, Mr Pepperall was right when he said that these features of the schedule cast doubt upon its reliability and accuracy.

Whilst, as I have noted above, Mr Turner was not challenged on the content of para 7 of his written evidence, in my view this does not disentitle Mr Pepperall from making valid criticisms as to the value of the material that Mr Turner produced. Mr Turner did not address the identified deficiencies in his evidence, by way of any explanation, so that it was not incumbent on Mr Pepperall to raise them with him.

It is Halfords which maintains that it was entitled to credits on the basis that Workers left within a specific timeframe. In my judgment, the material before me does not satisfactorily demonstrate that this was the case in relation to any Worker, at any particular date. The claim for credits under IPS clause 9 therefore fails.

As for the claim for credits under clause 6(vii) of the Conditions, which Halfords has set out in detail in its counter-schedule, in my judgment, the clause has no application. As its introductory words make plain, the relevant provision applies only in the event of election for an EPH, which Halfords did not make. I reject the claim for this discount.

In the circumstances, Halfords’ claims in respect of credits or discounts both fail.

I have addressed one point of principle in relation to this issue when considering Issue 1(b)(iii) at paras 123-126 above, namely that the court’s task is to identify pay over the course of a year for a Worker in the position occupied. It remains necessary to identify the base year for the purposes of the calculation, but first it is convenient to summarise the relevant evidence, and the parties’ rival contentions on matters of calculation.

The calculation of FPS’ case throughout was undertaken by Mr Pepall. His evidence sets out the calculations which he had carried out; he confirmed their accuracy. He explained in his witness statement the basis of them. When he gave evidence, he was not challenged in relation to any of this material.

FPS’ primary case was that Halfords is liable to pay a transfer fee of £557,789.94, including VAT, based upon a 37.5-hour week, and a 52-week year for all Workers concerned. However, it conceded, in the course of the trial, that there was an element of double-counting in its originally formulated claim in that a 12.07 per cent uplift in respect of holiday pay was included in its calculations. This error has been eliminated in FPS’ recalculated claim which appears at pages F:104-106 in the trial bundle, in the total sum of £490,370.99, including VAT. However, as I understand the schedule, this calculation does not take into account my finding that some 25 Workers had not been retained by Halfords. Alternatively, FPS’ secondary case is that it gets to the same figure by relying on IPS clause 3.9.

By way of a third alternative, FPS claims that the proper fee payable is to be calculated by annualising the actual hours worked by the Workers. Once again Mr Pepall undertook calculations for this alternative based on figures (1) before the transfer to Staffline, and (2) after such transfer, applying such annualised hours to the actual pay rates together with 12.07 per cent for notional WTD costs; the fees due would be respectively (1) £442,372.41, and (2) £205,762.65. FPS contends that of these measures, it is the first which I should adopt. They were set out in the Schedule to Further Information provided to Halfords on 11^th March 2016, at para 2(h)(iii) in great detail.

FPS also relied on evidence from Halfords’ witnesses. Mrs Lintern’s oral and written evidence was that the standard practice, including for temporary workers, was 37.5 hour per week. Mr Turner accepted, when taken to a timesheet for December 2011, that it would be fair to take 7.5 hours as the typical day shift. I accept that both Mrs Lintern, and Mr Turner, were trying to assist the court and to give accurate evidence as to these matters. This evidence is consistent with the treatment of overtime as being hours “after 37.5 hrs”, mentioned in Mr Crane’s e-mail, of 24^th May 2010, to Mr Reddy concerning a conversation with Mr Shirley. A draft Halfords and Staffline contract for the supply of Workers, which is in the trial bundle, suggests, at para 4.2, that this approach to overtime continued.

The evidence described in the previous paragraph is strongly supportive of FPS’ primary and secondary cases on quantum, but despite this, I do not consider that I can rely upon it for the purposes of ascertaining the correct amount due to FPS in accordance with my analysis, explained above, of the relevant provisions. This is because Mr Pepall’s calculation reveals a discrepancy between FPS’ primary case based on 37.5 hours per week, and what was actually happening in terms of earnings. The Workers were not actually working for a weekly average of 37.5 hours. It would, therefore, be wrong to assume, contrary to the evidence, that this was the case.

Halfords’ case based on actual hours worked (which of course is not its primary case, which is that any transfer fee is capped by reference to guaranteed hours) is that it is the hours worked in the year following the transfer that should be adopted, and on an actual, and not annualised basis. Its pleaded case as to the figures to be adopted was set out in Annex 1 to its Re-Re-Amended Defence and Counterclaim in a counter-schedule headed “Actual basic hours worked and rate of pay for the year following the transfer to Staffline”; the precise figure asserted on this basis is £76,365.26, as against Mr Pepall’s £205,762.65. Halfords adduced no witness evidence in support of these figures. There was a dispute between the parties, in their written additional submissions in September 2016, as to whether counter-schedules of loss served by Halfords ranked as evidence in the case. Halfords relied in particular upon CPR 32PD.27.2 for the proposition that since the counter-schedules were in the agreed trial bundle, they were admissible in evidence as evidence of their contents. FPS disputed this, relying upon CPR 32.6(2), which provides that at a hearing, other than a trial, matters set out in a pleading may be relied upon, but taking also the point that the relevant pleading was not verified by a statement of truth, and therefore Halfords could not rely upon it as evidence of any matters set out in it; CPR 22.2(1)(b).

Having rejected FPS’ primary and secondary cases, I find that the base year which should be annualised for the purpose of calculating remuneration is the year which preceded the transfer to Staffline. This is because the focus of clauses 3.4, 3.5, and 3.9 of the IPS terms is upon the position at the time of transfer, rather than at a later time. This is most clearly demonstrated by the reference to “where an annualised pay figure cannot be determined at outset” in clause 3.5. Further, clause 6(iii) of the Conditions refers to “Remuneration at commencement of Engagement”, which, to say the least, does not invite consideration of post-transfer material. I therefore reject Halfords’ case that it is the year following transfer that is relevant.

I find that Mr Pepall’s calculation set out at para 2(h)(iii) of the Further Information mentioned was an accurate computation of what it set out to calculate; I have in reaching this conclusion, carried out random checks on the accuracy of several of his entries, and I have found them to be accurate. I find further that his calculation in the sum of £442,372.41 representing annualised hours for the actual pay rates together with 12.07 per cent for notional WTD costs, was the correct methodology to adopt and reflects the principles which I have found to be applicable to the exercise, as discussed above.

It follows that in my judgment, the computations which have been carried out on behalf of Halfords are not based upon the correct method. If I had considered that the Halfords counter-schedules set out figures using the correct methodology, whilst I would have found that they did not stand as evidence, for the reasons advanced on behalf of FPS, I would have allowed Halfords to verify the counter-schedules with a statement of truth, and allowed further submissions to be made as to the appropriate course to be taken for resolving any computational issues between the parties. In the event, the issues do not relate to mere matters of computation, but to the principles to be applied for the purposes of the computation exercise. Being satisfied that the approach that has been adopted by Mr Pepall is correct, as are his calculations pursuant to it, there is no point to be served by entertaining any application for curing what I consider to be the technical deficiencies in the standing of the counter-schedule.

These findings should be sufficient for the parties to calculate the correct amount of the transfer fee to be payable, after adjusting the total to take into account the number of Workers that did not transfer to Halfords.

FPS, by para 11 of its Re-Amended Particulars of Claim, seeks payment of £68,211.44 in respect of unpaid invoices for the supply of Workers. This sum has not been paid. During the course of Mr Pepperall’s opening submissions, Mr Casey helpfully indicated that this part of the claim is not in issue, subject only to any right of set-off arising in respect of the counterclaim. This concession did not extend to any issues concerning interest, to which I turn next.

Is First entitled to interest on any of the sums claimed and, if so, which?

Is interest applicable at the rate set out in clause 4(i) of the terms and conditions, or some other rate?

It is convenient to consider these two issues together.

FPS’ primary submission is that entitlement to interest, both upon the outstanding invoices and transfer fees, arises under the provisions of clause 4(i) of the Conditions:

“Charges which represent wages paid are invoiced weekly and are payable within 7 days of the date of FPS's invoice. Any invoice outstanding over 7 days from the date of payment shall carry interest on the balance at the rate of 2 per cent per month or part thereof until payment.”

Alternatively, if the contractual rate does not apply, then FPS seeks interest pursuant to the Late Payment of Commercial Debts (Interest) Act 1998, or s35A of the Senior Courts Act 1981 (“the 1998 Act”, “the 1981 Act”).

Mr Casey submitted that as a matter of construction clause 4(i) applies only to invoices for fees which represent wages. If he is right about that, then it is only the undisputed invoices that could be subject to it. Mr Casey relied upon the wording of the clause itself, pointing out also that no invoice was required in respect of transfer fees if any are due at all, an interpretation which Mr Pepperall disputed on the basis that the clause relates to “any invoice”. In my judgment, Mr Casey is right. As he put it, the clause runs seamlessly from dealing with invoicing for wages, to dealing with interest, and the linkage between the two is powerful. I also have had regard to the further provisions of clause 4, which are contained in additional sub-clauses which I need not set out. They deal respectively with invoicing by reference to timesheets, the non-entitlement of Halfords to decline to sign a timesheet if dissatisfied with work performed (rather than invoking another contractual procedure), and the entitlement of FPS to terminate any “Engagement” between the parties if clause 4(i) is breached. It seems to me that all of these provisions suggest that the focus of clause 4 as a whole was upon the management of financial and other issues arising from the weekly provision of labour; prompt payment, invoicing procedures in respect of hours worked, how disputes relating to work done should be resolved, and entitlements (including as to termination) if prompt payment for Workers’ time was not forthcoming. The setting of the interest provision in this context suggests that it was to be confined to charges which represent wages. Interest upon transfer fees is of a different nature; it does not relate to a right in connection with work that has been undertaken by a Worker (whom FPS has had to pay). Moreover, time for payment of charges which represent wages paid are expressly made subject to a requirement for payment seven days from invoice. Until the invoice is raised, there is no liability to pay the charge, but once the invoice is raised, it must be paid within seven days. None of the charging provisions in relation to transfer fees requires an invoice to be provided before a sum becomes due.

For the reasons mentioned, I find that properly construed clause 4(i) does not apply to the claim for transfer fees but only to the charges for wages which have been paid. As to such liability (subject to set-off), Mr Casey submitted that the contractual rate is so high that it constitutes a penalty and is therefore void. As to that submission, Mr Pepperall relied upon the recent decision of the Supreme Court in two cases which were heard together: Cavendish Square Holding BV v Makdessi and ParkingEye Ltd v Beavis [2015] 3 WLR 1373. Although the cases arose from starkly different circumstances (the first, the sale of shares in a highly valuable company, and the second, a dispute about charges for overstaying in a car park), they were united by the theme of the liability to pay claims for sums that might have been regarded, on traditional principles, as irrecoverable penalties. The Supreme Court (Lord Neuberger PSC, and Lords Mance, Clarke, Sumption, Carnwath, Toulson and Hodge JJSC) completely reviewed the law of penalties. In the various judgments of their lordships (Lord Toulson dissented in the parking case, having regard to the application of the Unfair Terms in Consumer Contracts Regulations 1999, which are not in issue for present purposes), their restatement of the law undoubtedly overhauled it in many significant respects. For present purposes, I take the law to be as it was described by Lords Neuberger and Sumption, in a joint judgment with which Lord Carnwath agreed, at paras 31-35:

“31 In our opinion, the law relating to penalties has become the prisoner of artificial categorisation, itself the result of unsatisfactory distinctions: between a penalty and genuine pre-estimate of loss, and between a genuine pre-estimate of loss and a deterrent. These distinctions originate in an over-literal reading of Lord Dunedin's four tests [in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, HL(E)] and a tendency to treat them as almost immutable rules of general application which exhaust the field. In Legione v Hateley (1983) 152 CLR 406, 445, Mason and Deane JJ defined a penalty as follows: “A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation …” All definition is treacherous as applied to such a protean concept. This one can fairly be said to be too wide in the sense that it appears to be apt to cover many provisions which would not be penalties (for example most, if not all, forfeiture clauses). However, in so far as it refers to “punishment” and “an additional or different liability” as opposed to “in terrorem” and “genuine pre-estimate of loss”, this definition seems to us to get closer to the concept of a penalty than any other definition we have seen. The real question when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. A damages clause may be neither or both. The fact that the clause is not a pre-estimate of loss does not therefore, at any rate without more, mean that it is penal. To describe it as a deterrent (or, to use the Latin equivalent, in terrorem) does not add anything. A deterrent provision in a contract is simply one species of provision designed to influence the conduct of the party potentially affected. It is no different in this respect from a contractual inducement. Neither is it inherently penal or contrary to the policy of the law. The question whether it is enforceable should depend on whether the means by which the contracting party's conduct is to be influenced are “unconscionable” or (which will usually amount to the same thing) “extravagant” by reference to some norm.

32 The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect that Lord Dunedin's four tests would usually be perfectly adequate to determine its validity. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter's primary obligations. This was recognised in the early days of the penalty rule, when it was still the creature of equity, and is reflected in Lord Macclesfield LC's observation in the Peachy case 1 Str 447 (quoted in para 5 above) about the application of the penalty rule to provisions which were “never intended by way of compensation”, for which equity would not relieve. It was reflected in the result in the Dunlop case [1915] AC 79 . And it is recognised in the more recent decisions about commercial justification. And, as Lord Hodge JSC shows, it is the principle underlying the Scottish authorities.

33 The penalty rule is an interference with freedom of contract. It undermines the certainty which parties are entitled to expect of the law. Diplock LJ was neither the first nor the last to observe that “The court should not be astute to descry a ‘penalty clause’”: the Robophone case [1966] 1 WLR 1428 , 1447. As Lord Woolf said, speaking for the Privy Council in Philips Hong Kong Ltd v Attorney General of Hong Kong (1993) 61 BLR 41 , 59, “the court has to be careful not to set too stringent a standard and bear in mind that what the parties have agreed should normally be upheld”, not least because “any other approach will lead to undesirable uncertainty especially in commercial contracts”.

34 Although the penalty rule originates in the concern of the courts to prevent exploitation in an age when credit was scarce and borrowers were particularly vulnerable, the modern rule is substantive, not procedural. It does not normally depend for its operation on a finding that advantage was taken of one party. As Lord Wright MR observed in Imperial Tobacco Co (of Great Britain and Ireland) Ltd v Parslay [1936] 2 All ER 515 , 523:

“A millionaire may enter into a contract in which he is to pay liquidated damages, or a poor man may enter into a similar contract with a millionaire, but in each case the question is exactly the same, namely, whether the sum stipulated as damages for the breach was exorbitant or extravagant …”

35 But for all that, the circumstances in which the contract was made are not entirely irrelevant. In a negotiated contract between properly advised parties of comparable bargaining power, the strong initial presumption must be that the parties themselves are the best judges of what is legitimate in a provision dealing with the consequences of breach. In that connection, it is worth noting that in the Philips Hong Kong case 61 BLR 41 , 57-59, Lord Woolf specifically referred to the possibility of taking into account the fact that “one of the parties to the contract is able to dominate the other as to the choice of the terms of a contract” when deciding whether a damages clause was a penalty. In doing so, he reflected the view expressed by Mason and Wilson JJ in the AMEV-UDC case 162 CLR 170, 194 that the courts were thereby able to “strike a balance between the competing interests of freedom of contract and protection of weak contracting parties” (citing Atiyah, The Rise and Fall of Freedom of Contract (1979), chapter 22). However, Lord Woolf was rightly at pains to point out that this did not mean that the courts could thereby adopt “some broader discretionary approach”. The notion that the bargaining position of the parties may be relevant is also supported by Lord Browne-Wilkinson giving the judgment of the Privy Council in the Workers Trust case [1993] AC 573 . At p 580, he rejected the notion that “the test of reasonableness [could] depend upon the practice of one class of vendor, which exercises considerable financial muscle” as it would allow such people “to evade the law against penalties by adopting practices of their own.” In his judgment, he decided that, in contracts for sale of land, a clause providing for a forfeitable deposit of 10% of the purchase price was valid, although it was an anomalous exception to the penalty rule. However, he held that the clause providing for a forfeitable 25% deposit in that case was invalid because “in Jamaica, the customary deposit has been 10%” and “[a] vendor who seeks to obtain a larger amount by way of forfeitable deposit must show special circumstances which justify such a deposit”, which the appellant vendor in that case failed to do.”

(Emphases added)

Applying these principles to the present case, I have to consider whether the imposition of the rate of interest stipulated in clause 4(i) was out of all proportion to any legitimate interest of FPS in the enforcement of Halfords’ obligation to make prompt payment, but I also have to have regard to the bargaining position of the parties. As to the latter, it is obvious that Halfords is a substantial, very well-resourced company, with access, should it choose to take advantage of it, to the best legal advice. However, on the other side of the equation, it is not self-proving that Halfords was in a much stronger bargaining position than FPS. After all, Halfords had the need for a substantial supply of labour, and might well have found that despite its size, it would have to accept the standard terms of employment businesses, subject to some negotiation on various aspects. In this case, after all, Halfords did contract on FPS’ terms, including the term as to interest.

The rate of interest provided for in clause 4(i) was very greatly in excess of rates of interest generally prevailing or awarded in respect of commercial debts at any material time in relation to the matters under consideration, as well as being well above the rate prescribed under s6 of the 1998 Act (eight per cent above official Bank Rate; see the Commercial Debts (Rate of Interest) Order 2002). See also the commentary in para 7.0.16 of Volume 1 of Civil Procedure 2016 in which the practice as to the award of interest, and the history of rates over many years, is set out.Without some evidence to demonstrate why a rate of interest so completely out of line with commercial norms applicable at the time was justified, I consider that the rate was extravagant. The need for justification to be demonstrated is consistent with the approach taken by the Supreme Court in both the cases before it, and with that of the Privy Council in Workers Trust cited in the passage of the judgment which I have set out immediately above. The evidence before me simply does not address the issue. Mr Pepperall submitted that the rate was not out of all proportion to FPS’ legitimate interest in enforcing punctual payment of invoices, having regard to its own liability to pay employees, but I cannot see why a rate so far above what was the normal commercial level and that prescribed under the 1998 Act, was required to support the legitimate interest identified. I consider that the interest provision was penal and unenforceable.

In my judgment, subject to various objections that I must consider, the approach to be adopted in this case is for me to award interest under the 1998 Act, in respect of all sums awarded, whether relating to paid wages, or transfer fees. Mr Casey submitted that interest should be remitted under s5 of the Act, which provides that the court may so order where “by reason of any conduct of the supplier, the interests of justice” so require. The power extends to remitting in whole, or in part in respect of a period for which it would otherwise run, and there is a power to reduce the statutory rate. The reasons advanced by Mr Casey are, first, that it was reasonably arguable that the sums claimed were not due (in part due to poor drafting and lack of clarity in the Conditions), secondly, the provision of unreliable and incorrect information in support of the claims, and, thirdly, delay in prosecuting the claims for at least a year and seven months following first intimation of the claims. Mr Casey relied upon the decision of the Court of Appeal in Ruttle Plant Hire Ltd v Secretary of State for Environment [2009] EWCA 97, [2009] Bus LR Digest D93, and the decision of Jackson J, as he then was, in Claymore Services Ltd v Nautilus Properties Ltd [2007] BLR 452.

As to Mr Casey’s first objection (para 24.1 of the Re-Re Amended Defence and Counterclaim), it seems to me that it is not well-founded. It is clear from the provisions of s5 of the 1998 Act that the court’s power to remit depends not merely upon what it considers to be the interest of justice, but there must have been conduct by the supplier by reason of which the interests of justice so require; s5(1) of the Act. For this purpose, conduct at any time (whether before or after the time at which the debt is created) is relevant (s5(4)(a)), and conduct includes “any act or omission”. As to Mr Casey’s argument that both the balance of the account, and the transfer fees, are sums in respect of which FPS created uncertainty, he relied upon Ruttle for the proposition that “interest should be remitted wholly or in part in respect of only any sums in respect of which the supplier had created or allowed uncertainty”; see per Jacob LJ (with whom both Sedley and Lloyd LJJ agreed) at para 53. In so far as he relied, for this purpose, on poor drafting and lack of clarity in FPS’ standard form contract, I consider that the argument is unsustainable despite the width of the provision in s5 as to conduct. The contract was the contract of both parties. Halfords entered into the contract as a matter of its own choice; having decided to do so, in my view it is not open to Halfords to maintain that the terms to which it agreed were poorly drafted so that the liability to pay interest pursuant to the term implied (by s1 of the 1998 Act) as to liability to pay interest under the Act, should be the subject of remission under its provisions. This is not a case, on my findings (whether in this part of the judgment or later), in respect of which any deceit or otherwise unconscionable, improper or unlawful conduct by FPS induced the making of the contract; if any such criticisms could be made of FPS, I could see the potential for an argument that conduct inducing the contract might be relevant. This is a case where one party, Halfords, has decided to litigate the recoverability of sums claimed. It must have appreciated, having regard to the clear quality of the legal representation that it has had, that it was always a real possibility that FPS’ case would prevail. It was entitled to take that course, but having done so, it is not entitled, having been unsuccessful, to rely upon argument as to matters upon which it failed as a basis for remission. Before moving to the next point, I should add that I appreciate that Jacob LJ said, in the context of defective or inadequate invoicing, at para 38 in Ruttle, that “A paying party can withhold payment for sums reasonably in doubt or not yet properly settled.” But immediately afterwards he said: “The court will protect him by the use of section 5 remission because the uncertainty to that extent was created by the supplier. What he cannot do is to pay nothing at all and expect to escape the high rates of interest imposed by the Act on what on any view is due.” By themselves, the facts that sums may reasonably be in doubt, or not yet properly settled, will not suffice to engage the power to remit where the uncertainty has not been created by the supplier. For the reasons given, I find that this was not the case on this point.

As to the second objection, relating to the quality of information advanced in support of the claims (para 24.2 of the Re-Re Amended Defence and Counterclaim), in my judgment this too must fail. When addressing the issue of whether invoices calculated using wrong rates precluded application of the 1998 Act, Jacob LJ observed in Ruttle at para 33 that in the real world errors in invoices are common and, referring to a Law Commission Report, Pre-Judgment Interest on Debts and Damages (2004) (Law Com No 287), that “socially damaging behaviour” would be more likely if errors in invoices were enough to take a case otherwise within the 1998 Act outside its ambit altogether. As he explained later at para 35, a paying party receiving an invoice, and not knowing whether it was right or wrong, should pay “as a minimum what he considers he ought to be paying, say why he is not paying more and ask for substantiation.” That, however, is not what happened in this case. Halfords decided to pay nothing at all, because of its case about the Counterclaim. As explained above, at trial it conceded that there were unpaid valid invoices exceeding £68,000, but those were not paid for the same reason. The reality is that Halfords did not refrain from paying the claims because of uncertainty about the information provided. Even when it had been fully provided, witness statements exchanged, disclosure completed, and skeleton arguments filed, Halfords did not pay because it thought it had an argument as to the claim, and as to its own counterclaim. Its cases respectively have not prevailed as to the claim, for reasons given above, or as to the counterclaim, for reasons given later in this judgment, but this was a risk that Halfords took, and exposure to interest under the 1998 Act is the consequence.

The third objection (para 24.3 of the Re-Re Amended Defence and Counterclaim), as to delay from October 2012, when Halfords’ solicitors (Pinsent Masons, “PM”) responded to the intimation of a claim, until May 2013 when FPS’ then solicitors (Irwin Mitchell, “IM”) replied thereto, and from August 2013 when PM responded in turn, until the commencement of proceedings (19 months in all), as a matter of principle, if made out on the facts, might have a better foundation than the others. Before turning to the facts, I remind myself of the applicable principles which were summarised by Jackson J, as he then was, in Claymore. At para 55 of his judgment, the learned judge, having reviewed the authorities, said:

“(1)

Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

(2)

In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for present purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.

(3)

When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay.”

I keep these principles in mind when forming my conclusions as to any delay that ought to be taken into account in connection with interest.

I have considered the correspondence which passed between solicitors during the period concerned. This reveals that after PM’s long letter of 11^th October 2012, which clearly would have taken some time to consider, IM responded only days later to explain that the relevant fee earner was at that time absent, but a copy of the Conditions were forwarded with that message. It was then not until 11^th December that IM enquired of PM whether, having been provided with the Terms, this affected the matters previously raised on behalf of Halfords in correspondence; this drew a swift response suggesting that a substantive reply to the letter of 11^th October was required. It was not until 28^th May 2013 that IM responded, that is to say five months later. Thereafter, however, PM provided no substantive response at all, despite being chased to do so, until 9^th August 2013. It seems from the intermediate correspondence that it had taken all of this time to finalise the terms of the reply. In the circumstances, I do not consider that all of the delay that occurred between October 2012 until May 2013 was necessarily undue. It took PM almost three months to respond to IM’s letter of May 2013, and therefore it seems to me that to allow IM a period of up to four months to provide a substantive response to the October letter would be appropriate, especially allowing for the relevant fee earner’s initial absence, and then the intervention of Christmas. Even so, that leaves a three-month period which is not satisfactorily accounted for. Equally, I do not consider that the delay in issuing proceedings immediately upon receipt of PM’s August 2013 letter can be criticised. It needed to be considered, and proceedings finalised; three months for this should have been adequate. Altogether, then, I consider that whilst delay can be identified, it was of 12, and not 19, months’ duration. Whilst it is true that all of this occurred well within the limitation period, here FPS is seeking to recover interest under the 1998 Act at a higher than commercial rate. I have, in making my assessment, made all due allowance for the need to be satisfied that FPS neglected or declined to pursue the claim for a significant period, but as to the 12 months mentioned, I am satisfied that this requirement is satisfied. I have also had regard to Halfords’ use of the monies claimed in the meantime.

The conclusion I have reached is that interest should be awarded to FPS at the statutory rate of 8 above official Bank Rate throughout the appropriate period, save for the twelve-month period mentioned when it should be reduced by one half to four per cent. In the absence of agreement between the parties as to when the appropriate period should commence, I will hear further submissions. My hope is that the relevant date can be agreed, together with a computation of the amount due.

There is no dispute in this case that FPS invoiced Halfords for services calculated by reference to the number of hours worked by Workers. The rate per hour depended upon the role being performed, and whether the work was undertaken during ordinary hours, or as overtime. The elements intended to be covered included: (i) the hourly rate paid to the Workers (“the Pay Rate Element”); (ii) paid holiday entitlement accruing to the Workers as against FPS under the WTD (“the Holiday Entitlement Element”); (iii) the national insurance liability FPS would have to HMRC in respect of Workers on pay and holiday accruals (“the NI Element”); and (iv) a management fee or margin percentage (“the Management Fee Element”). VAT was added to FPS’ charges.

Halfords’ case is that “at all relevant times”, FPS explained its pricing to Halfords as being transparent, based upon, and calculated as a formula from the various Elements mentioned. This, it is suggested, was done in such a fashion that whether by actionable representation or agreement, the Pay Rate Element, Holiday Entitlement Element, and the NI Element, would equate to FPS’ actual costs (in terms of sums paid to Workers, whether as basic, overtime or holiday pay, and sums paid to HMRC in employers’ NI), together with an agreed and fixed management charge (representing FPS’ profit element). These representations were referred to as the Charge Components Statements. Halfords maintains that these Statements induced it to enter into contracts with FPS, whereby Workers were supplied to Halfords. Further, it is said, FPS owed a duty to Halfords to take reasonable care in respect of the truth of matters in connection with the negotiations with Halfords relating to the supply of Workers. From all of this Halfords seeks to spell out a term of the contract for services, or alternatively, a collateral contract, that the Pay Rate, Holiday Entitlement, NI, and Management Fee Elements were respectively to be used to cover, or equated to, FPS’ costs for paying Workers (pay, or holiday pay), HMRC’s NI charges, and lastly FPS’ profit; further, to the extent that they were not so used, or did not so equate, then the amounts would be refunded to Halfords. This, in the course of argument, was referred to as the Charge Components Agreement.

Halfords goes further than simply putting its case on the basis of contractual obligation, or actionable representation; it maintains that the monies that it paid to FPS were held on a Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567type trust, for Halfords, so that it seeks orders for accounts and enquiries as to what has become of the sums paid by it to FPS.

In sharp contrast to the case advanced by Halfords, FPS contends that the charges raised by FPS were based upon a fixed composite rate which Halfords agreed to pay. There was no representation or binding agreement to the effect that specific proportions of the charges were to cover, and to cover only, precise costs or expenses incurred by FPS. Any trust of the monies paid to FPS is similarly denied.

I shall begin consideration of the counterclaim issues by describing more of the factual background which is relevant to this part of the case, together with the evidence given by the witnesses, and the documentary evidence. Since there is a very great deal of overlap between the issues concerning the contractual and tortious bases upon which the counterclaim is presented (Issues 7, 8, 9, 16, 17, 18, 24, 25, 26, 32, 33, and 34 – “The Contractual and Tortious Counterclaim Issues”), I shall then describe the submissions which were made to me in respect of those issues, and set out my findings as to each of them.

Finally, I shall consider the remaining issues, that is Issues 10, 19, and 27, the Quistclose trust issues (“The Quistclose Issues”), and the “Miscellaneous Issue”, namely Issue 6, an accrued holiday pay claim, and Issue 11 concerning a WTD overcharge claim relating to overtime. I shall set out my individual findings, setting out my conclusions as to each of them.

The complaints made by Halfords in respect of suggested overcharges, or failures to account for money held in trust, are the subject of individual issues in respect of which I make my findings below, but it is convenient to consider much of the evidence relating to all of these issues together, because many aspects of the evidence cannot be compartmentalised so as to relate to only one item of the counterclaim.

It became perfectly clear in the course of the trial that employment businesses, in respect of which FPS is no exception, commonly, for the purposes of negotiation with their clients, indicate allowances for the elements (NI, WTD and so on) which give rise to the overall charge which they make for their services. There is no doubt that unless such a business is under a specific obligation to apply a stipulated proportion of the charge to the relevant element, or to refund the same if that is not done, then there is scope for the employment business to benefit from the fact that actual cost to it of an element mentioned was less than indicated in the stated allowances. By way of example only for present purposes, proposed rates were submitted to Halfords by FPS in a document dated 16^th March 2010. Amongst the several categories of Workers and shifts mentioned in it was a warehouse operative, working the 0600-1400 hours shift, whose example pay was £6 per hour, with WTD at 12.07 per cent (£0.72), “Real NI” at £0.51, and margin at £0.56, amounting in all to a charge rate of £7.79. I will say more later about the reference to “Real NI”. It is obvious, however, that unless a worker actually was paid £6 for an hour’s work, and accumulated holiday pay (relating to WTD) of 72 pence was ultimately paid to him or her, and NI of 51 pence was paid to HMRC, then, to the extent that FPS retained any amounts by which those sums actually paid out by it were less than those mentioned, this would represent a benefit to FPS.

In the case of NI, an employer is liable to pay HMRC employer’s (or secondary) contributions at the applicable rate in respect of any employee’s wages above the secondary threshold. Inevitably, therefore, if the headline NI rate is applied by an employment business as a sum that will be included in each hour’s charges for the supply of a Worker, the employer client will pay a total sum which is more than sufficient to cover the NI liability to be incurred by the employment business, because the total of employer’s NI liability will, when the calculations are undertaken, be reduced on taking into account the secondary threshold.

The scope for an employment business to benefit in relation to NI costs was increased by HMRC’s operation of the TSS. This was described by Mr Reddy and by Mr Stant in their evidence. The scheme was operated by HMRC by way of a dispensation; in April 2016, it ceased to be available because of changes introduced in that year’s Finance Bill. It was available in respect of Workers not expected to have to travel to their “temporary” place of work for more than two years; Workers needed to opt into the scheme, and FPS charged an administration fee for its operation. It afforded Workers tax relief in respect of their costs of travel to work, and in respect of meals, depending upon the duration of their shifts. Travel and subsistence costs were deductible from a Worker’s gross earnings before computation of tax and NI due. I accept this evidence as to the operation of the TSS.

There was a significant financial benefit to FPS from the operation of the TSS scheme. This was because the reduction in the Workers’ pay, for HMRC’s purposes, reduced what was due in respect of NI from the employer. Mr Pepall gave evidence about this, which I accept. He said that the “lion’s share” of the benefit of the scheme went to FPS. He thought that the benefit could have been in the region of £200,000 to £250,000 per annum in 2011; this was before taking into account running costs, but those were effectively recovered from Workers as a charge for belonging to the scheme.

I accept Mr Reddy’s evidence that Halfords knew that FPS was operating the TSS, although he was not directly involved in the negotiation about the matter. He explained that it had been necessary for Halfords to change the manner in which its payroll was produced in order for FPS to operate the scheme in a compliant fashion. Workers’ contracts were changed and they became employees, and notices were put up in Halfords’ staff canteen. Moreover, FPS’ tender presentation material to Halfords in 2010 emphasised the benefits of the operation of the scheme, a point accepted by Mrs Lintern, when she gave evidence. Mr Reddy maintained, in cross-examination, that there was pressure to bring down FPS’ composite charge rate, and that whilst there was no direct linkage between the introduction of the scheme and the reduction in the rate charged by FPS, its introduction had afforded “wriggle room” to FPS, of which Halfords was aware, and FPS passed on some of the benefit which it derived to Halfords. Again, I accept his evidence about this, and add that Mrs Lintern acknowledged that once Halfords knew of the operation of the scheme, it would have been obvious that there was some benefit to FPS.

In the case of holiday pay, for similar, but not identical reasons, there was scope for employment businesses to benefit from making provision in this regard. Under the WTD, Workers are entitled to a specified number of days’ holiday per annum; by 2011, the figure was 20 days. The entitlement to holiday pay accrues throughout the time that a Worker is engaged. Importantly, however, under Regulation 13(9) of the Working Time Regulations 1998, whilst leave to which a worker is entitled may be taken in instalments, (a) it may only be taken in the leave year in respect of which it is due, and (b) it may not be replaced by a payment in lieu, except where the Worker’s employment is terminated. The consequence of this is that if a Worker does not take holiday during the relevant year, or if he leaves his employment but does not seek payment for his accrued, but yet unpaid holiday entitlement, the employment business will benefit by retention of the accrued holiday pay. Ms Muir’s evidence was that Halfords required Workers to take their holiday during a defined year – “If you don’t take your holiday, you don’t get paid. You don’t get paid your holiday pay”. There is, therefore, always the possibility that in respect of any allowance for holiday pay, it will not equate to the employment business’s actual costs in respect of such pay; the possibility, in my judgment, becomes a likelihood when hundreds of Workers are supplied over a long period of time. Mr Pepall’s evidence, which I accept, is that if Workers did not take holiday, then their entitlement was lost. He put it this way – “At the end of the employment year -… any untaken holiday is then written back to the profit of the business.” Further, he explained, that if a departing Worker requested a P45, which most did, then the accrued holiday pay would be paid out at the same time. If the P45 was not requested, then the accrued holiday pay was released back to FPS.

Against this background, in which there was an ever-present likelihood, that the allowances, for NI and WTD, made in the rates charged would exceed the actual costs in the event to be incurred by FPS, if it were intended by the parties that no windfall should accrue to FPS in respect of such excess, then a process for reconciliation of allowances built into the charging against actual costs to FPS would need to be created. The provision for reconciliation, and the expectation of it, or the absence of such provision and expectation, not surprisingly, became an important issue in this case. Mr Gardner conceded that he had seen nothing, in the course of his work for Halfords, which provided for there to be any reconciliations, though he said that he had inferred, from a schedule of rates forwarded to Halfords by Laurence Reddy on 15^th August 2011, the need for a reconciliation of NI.

Over the years that the parties dealt with each other, the subject of FPS’ charge rates was something that came up with some frequency, and reference was commonly made to NI and WTD.

As for the witness evidence with regard to the basis of charging, Halfords called no-one who had direct knowledge of the matters in issue. None claimed to have been closely connected with the process of any of the negotiations. Mr Turner and Mr Gardner were never part of Halfords’ own management team, and were simply, through their respective companies, suppliers of services to Halfords. Ms Muir, as I have mentioned above, joined Halfords after notice of termination had been given to FPS. The only other witness to give evidence on behalf of Halfords was Mrs Lintern, who did not claim to have been involved in material negotiations of terms, but she did claim to have pursued the very important matter of reconciliations concerning NI with FPS.

In her written evidence, Mrs Lintern said that she had been told by Mr Shirley, shortly after joining Halfords, that the agreement with FPS was for “actual NI”, and that “Halfords were supposed to get quarterly reconciliations”. She said that she was “fairly sure” that she had asked FPS to provide reconciliations from 2008 or 2009 onwards, but that she could not be certain as to when or how she had asked for them, although she definitely remembered talking to Mr Shirley about the need to obtain them before she went on maternity leave in mid-2010. For the first time, and only after considerable questioning by Mr Pepperall, Miss Lintern suggested that she thought she had “possibly” spoken to Mr Crane of FPS about the missing reconciliations; however, less than a minute later, she was “fairly sure” of this point, though not “100 per cent sure”. She had to accept that once a written request for reconciliations was made in the autumn of 2011, it rapidly generated a significant number of e-mail exchanges, also involving Mr Shirley; this was a feature wholly absent in relation to any suggested earlier requests.

She claimed that when Mteq was introduced to Halfords in the latter part of 2011 she told Mteq that she believed that Halfords was not securing savings because it was not receiving the reconciliations to which it was entitled from FPS in relation to NI. She drew attention to e-mails of 20^th and 26^th October 2011. Neither of those messages lent much support to her recollection of chasing reconciliations over the years. The former, from Mr Richard Brookes, of FPS, to Mr Reddy, referred to a conversation with Mrs Lintern in which she requested reconciliations, apparently suggesting that they should be received quarterly, but explaining that her failure to chase them previously was due to her absence on maternity leave. This reported conversation suggests that Mrs Lintern implicitly acknowledged that she had not previously sought such reconciliations. (Her written evidence asserted that she had asked the person who covered her absence during maternity leave to chase for reconciliations while she was away, but that they had failed to do so. In cross-examination, she accepted that she could not identify any written communication to her “maternity cover” to pursue the point.) The latter message was sent by Mrs Lintern herself to Mr Reddy in which she merely stated that she “had been advised” that she needed to speak to him regarding copies of reconciliations for “our account”, and requested copies of all completed NI reconciliations to date. When FPS provided some NI information in early November, this prompted a further enquiry from Mrs Lintern concerning the TSS, but, I observe, by this time Mteq was very actively involved in seeking to secure information. Mrs Lintern was unable to point to any documentary record of a request for reconciliations other than those mentioned in her written evidence.

Examination of contemporaneous documents, and close examination of Mrs Lintern’s evidence in cross-examination by Mr Pepperall, revealed the absence of factual underpinning for any belief within Halfords, entertained by Mr Shirley or Don Tevlin, and destroyed any case that Mrs Lintern, or anyone else at Halfords, had actually sought to obtain NI reconciliations from FPS until the autumn of 2011.

Mr Pepperall took Mrs Lintern to a series of e-mail exchanges on the subject of the level of the NI charge, beginning with an internal Halfords e-mail from Mr Ian Turner-Tymm (Halfords’ website operations manager) to Mr Shirley, dated 29^th September 2005. That, and further exchanges between them, demonstrated that the NI charge would be at a flat rate of 12.8 per cent without any allowance for the secondary threshold. Next, Mr Pepperall moved to an e-mail of 10^th October 2006 from Mr Allen of Halfords to Mr Crane (copied to others). This also referred to the flat 12.8 per cent rate, though mentioning an expectation for adjustment to “actual NI” payments for anything over £93 per week; there was no suggestion that anything was agreed about this suggested adjustment. Reference was then made to an e-mail to Don Tevlin and Mr Shirley from Lee Tevlin (Don’s son, also of Halfords) dated 2^nd October 2009; this was copied to Mrs Lintern. This spelt out the same 12.8 per cent charge without taking into account the secondary threshold. In light of this e-mail traffic, Mrs Lintern had to accept that the deal between the parties that FPS was going to charge 12.8 per cent in respect of all NI liabilities, without making any allowance for a secondary threshold, was inconsistent with the notion that there were to be any reconciliations. She conceded that the e-mails mentioned did not back up what she asserted Mr Shirley, and Don Tevlin, had told her about the need for reconciliations.

The problems for Halfords’ case that there had ever been provision for reconciliation did not end with this evidence. On 20^th January 2010, Mr Reddy, by e-mail, forwarded proposed rates to Don Tevlin. They included a 9 per cent NI charge for warehouse staff, and 10.5 per cent charge for drivers. Again, there was no allowance for any secondary threshold. Mrs Lintern accepted, when shown the documents, that the basis of the proposal was not “real NI”, and that she would know, immediately on looking at it, that it was not an attempted estimation of liability to HMRC; she conceded that it was a composite charge rate, with nothing to indicate that reconciliations were expected. At about this time tenders were submitted by other employment businesses that were competing for the same business. She conceded that the bids from a rival agency, Blue Arrow, were made on the same basis as those of FPS, with no mention of reconciliations. She asserted, however, that such reconciliations were promised by various other tenderers at tender meetings, although such promises were not reduced to writing, and that she could not remember who had made such promises and who had not. Later in her evidence, she claimed to be unable to remember whether the word “reconciliation” had been used or not, but she did accept that when agencies were asked to tender they were invited to insert information in the form of a grid provided by Halfords. This grid invited percentage expressed bids for example pay, WTD, NI, and margin for different types of staff. It said nothing about reconciliation, and Mrs Lintern accepted that the grids would not allow tenderers to enter up anything other than an approximation for NI. She acknowledged the need, on the operation of a true costs plus basis, to hammer out an agreement with suppliers as to just how reconciliations would be undertaken. She accepted that tenderers were ranked and that ultimately Halfords was interested in the overall cost; this was how the tender analysis was prepared for shortlisting. Although she said that it was important that the NI was correct, she accepted that it was never analysed, and that it was a principle as opposed to a value that was important. She confirmed that there was no internal Halfords e-mail traffic concerning the need for NI reconciliations from tenderers. Once again, she said that matters were discussed in meetings. As for the tender meetings, she accepted that she could not recall whether FPS or Blue Arrow had said that true NI would be used.

Mrs Lintern accepted that in February 2010 an appraisal of FPS was undertaken, and one of its weaknesses (documented in a review from that time) was perceived to be its reluctance to apply actual NI. This suggested that no deal had been struck for an “actual NI” component at that time; Mrs Lintern tried to avoid answering this point by saying that she could only say what she was told, but she made it clear that she did not suggest that after June 2008 (when she joined Halfords) any new basis of deal was reached. She volunteered that she did not know what was discussed in meetings, and that she did not remember the meetings. She accepted that by March 2010 Halfords had chosen to retain FPS for warehouse staff, but to use Advance Driver Solutions (“ADS”) for drivers. In the subsequent Halfords’ internal management meeting notes, where new contractual arrangements were mentioned, Mrs Lintern accepted that nothing was said about the need to hammer out arrangements with FPS for reconciliations. Having been referred to FPS’ tender dated 16^th March 2010 (trial bundle C2/464), an e-mail dated 19^th April 2010 from Mr Crane (of FPS) to Don Tevlin, and an e-mail to her from Mr Shirley setting out those self-same tender rates, she accepted that there was a known formula which she could apply for checking invoices to see that what was being charged in total was correct for any given pay rate. I note that Mr Crane’s e-mail specifically invited Mr Tevlin to make sure that he was happy with the pay rates mentioned; it also stated that Mr Crane knew that the charging formula had been agreed so that the charge rates mentioned were correct.

Mrs Lintern also conceded that for any costs plus model it would be necessary to undertake reconciliations, and that this would involve extra work in costings, and that although such a model might give rise to greater visibility as to costs incurred by the supplier, Halfords would not know the costs to it of Workers until reconciliations were undertaken. She said that for Halfords to examine any reconciliations on a line-by-line basis would be the work of days, something which Halfords’ administration team did not need.

Mr Reddy described FPS’ method of operation, whereby Workers were paid, and charged for, on an hourly basis. During the 20 or so year period that Halfords was a customer of FPS, Mr Reddy said, the basis of arrangements did not change except for the alteration of a formula in 2010. He said that until Halfords decided to open a new distribution centre in Coventry, the only element in FPS’ charge formula (set out, for example in Mr West’s email of 29^th September 2005, forwarded to Mr Turner-Tymm, see below at para 198) that was reduced was the management fee; this came down from 90 pence to 56 pence. In 2007, FPS won all of the driving business from Halfords for its Redditch and Lakeside sites. Mr Reddy observed that FPS’ composite rate was lower than that of its rivals for the business, even though Halfords knew that it was calculated on the basis of notional NI at 12.8 per cent.

He made it very clear, however, in cross-examination when pressed on this point, that he refused to move to actual accrued NI. He repeated the point in clear terms – “we point blank refused, and we continued not to do that up until we were awarded the Coventry work in 2010.” A reduction in the management fee was, however, conceded.

Mr Reddy said that Halfords’ request for information in 2009 (see para 198(vi) below), for the first time, raised “costs plus” issues. His response that his transparent calculation was “effectively costs plus”, he said, was not intended to suggest that the charge rate was calculated otherwise than in accordance with the formula, pointing out that the formula was expressed in a percentage. He elaborated in his witness statement, saying that a “costs plus” model moves away from a composite rate, and requires negotiation as to how the elements of the employment business’s costs that are to be included.

In February 2010, FPS had the opportunity to make a business presentation to Halfords. Mr Reddy said that he priced the NI element lower at 9 per cent and 10.5 per cent (respectively for warehouse operatives and drivers) because he knew that Mr Shirley wanted to move to “real” or “actual” NI, which Mr Reddy considered were the same thing. However, Mr Reddy maintains that at no point during the tender process was moving to a “costs plus” basis discussed. After further discussion, in March 2010, in which Mr Shirley told Mr Reddy that he needed to “sharpen his pencil”, Mr Reddy was prepared to budge on NI rates in order to obtain the Coventry work. FPS bid (in a document headed “First Personnel Proposed Warehouse Rates”, hand-delivered to Mr Shirley on 17^th March 2010) on the basis of an example pay rate for a warehouse operative of £6 per hour, on which real NI would be 51 pence. The total rate this produced, with other items, was £7.79 per hour. Mr Reddy was questioned about this in considerable detail. He explained, by reference to the documents, including internal FPS’ e-mail exchanges of 19^th April 2010, that agreement had been reached with Mr Shirley on 17^th March on the basis of the document then delivered. The agreement was for “real NI” based on a 40-hour week taking into account the secondary threshold; the rates, he said, put forward in his calculations of 17^th March 2010, were rates agreed and incorporated. According to Mr Reddy, it was the desire not to lose Halfords that drove this deal, which, in the event was secured, and Workers were supplied to the Coventry centre in April 2010.

Asked, in cross-examination, about the e-mail from Mr Brookes, dated 20^th October 2011, which Mrs Lintern had relied upon to suggest that reconciliations ought to have been supplied by FPS, Mr Reddy was adamant that there was no agreement in that regard:

“We had never agreed any quarterly NI reconciliations at all with Halfords. There was a stage -- not a stage. There was the one point when the threshold changed in April and there was a reconciliation done for that. Apart from that, I've never met Stacey Lintern. I've never spoke to her, and I've certainly not discussed NI reconciliations going back to where she’s talking about in that email.”

Not surprisingly, Mr Casey pressed Mr Reddy as to why he had not, in the circumstances, contacted Mrs Lintern to correct her perceived misapprehension. Mr Reddy’s explanation was that he did not know her, and had no relationship with her, and that-

“We were dealing with Mark [Shirley] on the NI reconciliation that we thought was the one that was going on due to the secondary threshold changing. There was no previous discussions at all about NI reconciliations on a monthly or quarterly basis.”

A little later in his evidence he elaborated on this, explaining that the secondary threshold, and employer’s NI rate, changed on 1^st April 2011. He said that a reconciliation was being undertaken in connection with this change, and a change was to come into effect in October in respect of the minimum wage. Upon the latter, he said, the change in threshold was to be taken into account, and backdated to 1^st April, and this led to the offer of a credit for around £10,500. This particular point, concerning the limited reconciliation back to April 2011, was not something that he had discussed directly with Mr Shirley himself; it had been handled by Laurence Reddy.

The following documentary exchanges were relied upon by one or both parties, in support of their respective cases:

Did First represent, promise, warrant or agree as part of the contracts for services between First and Halfords, alternatively a collateral contract, that the paid holiday entitlement element of the charge would be used to cover the temporary workers’ paid holiday entitlement, and if and to the extent it was not, that this element of the charge would be refunded to Halfords?

If such a representation was made, did Halfords rely upon the representation and/or did it induce Halfords to enter into contracts for the supply of temporary workers?

If so:

Did First represent, promise, warrant or agree as part of the contracts for services between First and Halfords, alternatively a collateral contract, that the NI element of the charge reflected First’s NI liability to HMRC in relation to the temporary workers, and if and to the extent it exceeded such liability, that this element of the charge would be refunded to Halfords?

If such a representation was made, did Halfords rely upon the representation and/or did it induce Halfords to enter into contracts for the supply of temporary workers?

If so:

Did First represent, promise, warrant or agree as part of the contracts for services between First and Halfords, alternatively a collateral contract, that the pay rate element of the charge would be used to cover the hourly rate paid by First to the temporary workers, and if and to the extent it was not, that this element of the charge would be refunded to Halfords?

If such a representation was made, did Halfords rely upon the representation and/or did it induce Halfords to enter into contracts for the supply of temporary workers?

If so

Did First represent, promise, warrant or agree as part of the contracts for services between First and Halfords, alternatively a collateral contract, that the management fee element of the charge was a fixed amount that represented First’s profit, and if and to the extent it did not, that this element of the charge would be refunded to Halfords?

If such a representation was made, did Halfords rely upon the representation and/or did it induce Halfords to enter into contracts for the supply of temporary workers?

If so:

Mr Casey’s starting point for his skilful, and well-presented submissions on this aspect of the case, was that in construing the contract between the parties, the words used are to be given their ordinary meaning, and that if it is to be suggested by FPS that any words in this case should bear an unconventional meaning, then the burden is upon FPS to prove that such a special meaning is applicable; see per Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101.

With this point in mind, Mr Casey moved on to make a general submission as to whether a warranty was intended. This depended, he argued, on the conduct of the parties, their words and behaviour, which must be objectively assessed. The test was whether an intelligent bystander would reasonably infer that a warranty was intended; see per Denning LJ, as he then was, in Oscar Chess Ltd v Williams [1957] 1 WLR 370, at 375. He relied also upon the well-known passage, in the judgment of Lightman J, in Inntrepreneur Pub Co Ltd v East Crown Ltd [2000] 2 Lloyd’s Rep 611 at para 10:

“(1)

a pre-contractual statement will only be treated as having contractual effect if the evidence shows that parties intended this to be the case. Intention is a question of fact to be decided by looking at the totality of the evidence;

(2)

the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances;

(3)

in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them;

(4)

a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal;

(5)

a representation of fact is much more likely intended to have contractual effect than a statement of future fact or a future forecast”.

Mr Casey then brought these principles together neatly in formulating the question for me to consider on the counterclaim, namely, in his words, “what the intelligent bystander/reasonable outside observer would reasonably infer from the dealings between the parties concerning the charge components.” On this question, he submitted that the reasonable inference to be drawn, especially from the contemporaneous documents, was that the first three elements of the charge components formula (that is Workers’ pay, NI, and WTD) would equate to FPS’ actual costs, and in so far as they did not, then Halfords would be entitled to a refund.

Before turning to the particular evidence upon which he relied, first, Mr Casey addressed the question of whether the entire agreement clause contained in the IPS was of application in this case. He made careful submissions on this point; since it is not, in the event, in contention, I intend no disrespect to him, when I say no more than that I am satisfied that he was right in arguing that the provision is of no application, not least because of non-incorporation of that part of the IPS into the applicable Conditions. Secondly, he made a point of general application, which was that the management fee made sense if the other elements of the charge were the real costs. Thirdly, he submitted that given the pleaded issues in this case, the scope for oral evidence is quite limited.

This third, and important, point Mr Casey helpfully elaborated upon in his oral closings. He acknowledged that his case as to charges was best characterised as a collateral warranty claim, and that if he could not succeed on that, then he would face similar difficulties on alternative formulations of the claim. This, in my view, was a realistic approach. Mr Casey argued that Halfords’ case was anchored to the documents, upon whose interpretation the case turned. In its documents, FPS had stated something to be a cost, and Mr Casey said, prima facie, a cost is a cost, unless stated to be an approximation, which it was not. He accepted in argument, however, that in the case of NI, at least until around the time when the phrase “real NI” came to be used, it was plain that it was an approximation. He also accepted that, with NI, Halfords’ case would necessitate having a reconciliation for which no express contractual provision was made.

Mr Casey made the important point that if the contractual arrangements bear the interpretation for which he submitted, then the failure to chase reconciliations, whilst evidence of subjective behaviour on the part of Halfords, ought not to be imported into the objective meaning of the words used. The fact that Mr Shirley, or others, failed to chase reconciliations did not mean that they were not necessary, or that Halfords was not entitled to them.

Mr Casey then identified the documents which he contended contained the representations or agreement relevant to his case, in which, he submitted, FPS expressly explained its pricing to Halfords, with emphasis upon transparency and a formula from the elements mentioned. These documents are those which I have described above at para 198. Applying the principles of construction which he advanced in relation to those documents, he submitted that the words used in them, in ordinary meaning, amount to representations or agreement that the elements of the charge respectively representing the pay rate, NI, and WTD should be understood as meaning FPS’ actual costs in respect of those elements. No other meaning or understanding was demonstrated, he maintained; as to which he relied upon the evidence in the case, inviting me to accept the evidence of Halfords’ witnesses in full. Mr Casey invited me to find that Mrs Lintern was independent, honest and reliable; for reasons described in this judgment, I am not able to accede to that invitation.

The policy of FPS in not paying out accrued holiday pay, and what was described as deliberate concealment of this fact, reflected poorly on FPS and all of its witnesses, Mr Casey suggested. When expressing my views of the witnesses, above, I have mentioned Mr Casey’s criticisms of Mr Reddy; to be added to those it was suggested that Mr Reddy had limited knowledge of relevant matters as to dealings with Halfords because it was Laurence Reddy who had handled such matters. By way of example only of the latter point, Mr Casey relied on Mr Reddy’s acceptance that it was his father who had dealt with the issue concerning a limited reconciliation back to April 2011, which I have described more fully above at para 197.

FPS’ failure to call Laurence Reddy and Mr Shirley attracted criticism from Mr Casey. He referred to the judgment of Brooke LJ in Wiszniewski v Central Manchester Health Authority [1998] PIQR P324, who, having reviewed the authorities, said, at page 340, that he derived the following principles from them:

“(1)

In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)

If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)

There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)

If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified”.

I was invited to draw an adverse inference because FPS had not called Laurence Reddy and Mr Shirley on the basis that (1) they both had material evidence to give in respect of the issues raised on the counterclaim, (2) no good reason for not calling them was advanced, and (3) there was a clear case to answer on the counterclaim. The suggested inference was that FPS considered that the prospective witnesses’ evidence would not withstand the scrutiny of cross-examination, and would damage FPS.

As for Halfords’ failure to chase up NI reconciliations, Mr Casey advanced a number of reasons for which I should not place reliance upon this factor, including the lack of assiduity on the part of Mr Shirley, and Mrs Lintern, “chaos” (in Mrs Lintern’s words), when she returned from maternity leave, and the all-consuming focus of the opening of the Coventry premises.

Mr Pepperall began with the proposition that in determining whether there has been a representation, and to what effect, the court must consider what a reasonable person would have understood from the words used in the context in which they were used, citing the decision of Toulson J, as he then was, in IFE Fund SA v Goldman Sachs International [2006] 2 CLC 1043, at para 50.

He then proceeded to analyse, from the perspective of the reasonable reader with knowledge of the context, the e-mails (22^nd December 2004, 29^th September 2005, 13^th July 2009) and tenders (December 2009, and autumn 2011) upon which Halfords relies in para 5 of its Re-Re-Amended Defence and Counterclaim, in order to make out his submission that nothing in any of the documents indicates that the amounts to be charged for the various elements of the charging formula were intended to be the actual amount of FPS’ liabilities, submitting that such a reader would understand that:

As for the TSS scheme, Mr Pepperall submitted that the same reasonable reader, knowing such a scheme to be in use (I was invited to find that Halfords had such knowledge), would appreciate that it would have the effect of reducing FPS’ NI liability.

Moreover, Mr Pepperall submitted, study of documents including Halfords- generated e-mails of 29^th September 2005, 27^th October 2005, 10^th October 2006, 2^nd October 2009, and 5^th October 2009, demonstrates that Halfords’ staff actually had appreciated the position as to flat rate charging; further, this was confirmed by Mrs Lintern’s evidence, which also demonstrated that FPS resisted pressure to reduce NI charges. It was also demonstrated by Halfords’ perception, in the February 2010 tender process, that FPS was reluctant to apply actual NI. The same tender process also highlighted how different tenderers had varied practices as to the method of charging for NI, but all bid on the basis of composite rates irrespective of hours worked by staff.

Mr Pepperall submitted that as for the tenders, read in light of the trading history, they constituted not representations, but rather offers to trade on the basis of a formula which made flat rate allowances for WTD and NI. Even the reduced NI charge of 9 per cent remained, and obviously so, an approximation.

Although the point had not been pleaded, Mr Pepperall took issue with regard to the authority of the senders of the various e-mails. Objection was taken to this course, and I shall later rule upon its propriety.

Much the same material was relied upon by Mr Pepperall to demonstrate that there had been no reliance on the alleged representations; it demonstrated that Halfords was aware of the true position, although it had an ambition to change the basis of charging. Not unsurprisingly, Mr Pepperall also relied upon the manifest weaknesses in Halfords’ evidence as to reconciliations.

Mr Pepperall submitted that the alleged representations could not operate as a collateral warranty having regard to the insignificance of the statements, which were never spelt out in negotiation or in formal documents; further, no reconciliations were sought or given. In 2009/10, in the tender process Halfords sought only flat percentages for NI and WTD, and when analysed were considered on the basis of composite rates. He submitted that Halfords well knew, or was in as good a position as FPS to know, that the NI and WTD charges would not equate to actual costs, and further the suggested statements are contradicted by the express term that Halfords would pay the hourly rate stipulated. Further, there was no evidence or assertion that the representations induced Halfords to enter into any contract. Mr Pepperall relied upon paras 13-003 to 13-006 of Chitty on Contracts, 32^nd edition, and submitted that for all these reasons the case as to a collateral warranty must fail.

As for the case in tort, Mr Pepperall accepted that in principle a duty of care can arise where a representee has suffered loss by reliance upon the negligent misstatement made by a professional person; Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. A duty of care will arise, he submitted, where there has been an assumption of responsibility (Henderson v Merrett Syndicates Ltd [1995] 2 AC 145), which it is easy to infer where there is reliance on the skill and judgment of a professional person, for example, a solicitor (as in Midland Bank v Hett, Stubbs, & Kemp [[1979] Ch 384), or a surveyor and valuer (as in Smith v Eric S Bush [1990] 1 AC 831). No such duty arises in this case, however, he argued, because FPS was providing services on an arm’s length basis to Halfords, a sophisticated buyer of such services. Furthermore, there was no question of the exercise of professional skill or judgment in quoting charge rates to Halfords. The evidence also demonstrated a lack of reliance upon any statements made as to charge rates, and there is no evidence that FPS knew, or should have known, of such reliance. In short, there was no assumption of responsibility.

It is convenient for me, first, to consider the evidence given by the witnesses that is material to these issues, because my findings in this regard define the context in which the documents relied upon by the parties are to be construed, as well as the scope of any additional matters that I have to take into account which might supplement what is to be found in the documents.

I accept the evidence given by Mr Reddy as to FPS’ dealings with Halfords in connection with the supply of Workers; that is to say, where Mr Reddy has stated that he had a particular conversation on a point with a Halfords’ representative, or reached agreement on a matter (for example, on 17^th March 2010 with Mr Shirley), that his recollection was accurate. I also accept his evidence as to matters which were not discussed, or agreed. Therefore, I accept his evidence that there was no discussion of moving to a “costs plus” basis of supply of staff during the tender process in 2009 and 2010, save in so far as there was reference to that matter in the documents that were generated, and that FPS had “point blank” refused to move to “real NI” in the course of discussion around 2005, and right up until FPS was awarded work in respect of the Coventry site in 2010. Where he spoke to matters within his knowledge or recollection generally, I find him to have been truthful, and accurate; where he spoke to matters which were based upon what he understood to be the case, whether because he had been informed of something or otherwise, I accept that he genuinely had enjoyed that understanding. Moreover, I find that the Halfords’ relationship was something of sufficient importance to FPS at all material times, that he was likely to have had a good knowledge of any significant developments which might have affected it – such as, for example, a proposal that reconciliations should be provided in respect of NI, or that a costs plus basis of contracting should be adopted.

I specifically accept Mr Reddy’s evidence that nothing was agreed with Halfords as to NI reconciliations, save to the very limited extent which he explained in his oral evidence, namely that a reconciliation was agreed to be undertaken in connection with NI threshold changes which took effect in April 2011. I reject completely Mrs Lintern’s evidence as to her having made any requests for NI reconciliations of any member of FPS’ staff before October 2011, at about the time of Mr Brookes’ e-mail to Mr Reddy dated 20^th October 2011. I find that none was made until that time, and that it was only in response to the enquiries that Mteq was undertaking that the matter was raised at all. I cannot accept that Mrs Lintern, or any other member of Halfords’ staff who dealt with the matter at the time, genuinely believed that there was an arrangement for such reconciliations, and that FPS was in default of an obligation to provide them. The truth is that there was no such arrangement. I have considered whether the truth was that, despite her failure to pursue the allegedly due reconciliations, she had appreciated that they were due, but failed to pursue them, so that her untruthful evidence concerning reconciliations was designed to conceal her own shortcomings in the performance of her duties. However, on the totality of the evidence in this case, I consider that she was motivated by a misplaced desire to help Halfords; it was certainly not by any hope of personal gain. I am satisfied that there never was an arrangement for the provision of reconciliations as Halfords’ case suggests.

I do not draw any adverse inferences against FPS because Mr Laurence Reddy and Mr Shirley were not called to give evidence. The evidence necessary for FPS to address the counterclaim was amply covered by Mr Matthew Reddy, who gave evidence for a day; so, there was no need to call Laurence as well. The decision not to call him was, it seemed to me, a proportionate response to the assessment of the material that had been deployed against FPS. Had Laurence been called, I think that it would undoubtedly have pushed the trial into yet another day. As for Mr Shirley, whilst he had provided a witness statement for FPS, he had been a senior member of Halfords’ staff. Given that Halfords, who could have asked Mr Shirley to give evidence for it, as his former employer, served no witness statement from any witness who could speak to the negotiations between the parties, material to the counterclaim, I did not find it at all surprising that FPS decided not to call Mr Shirley to give evidence.

Halfords was, I find, well aware of the fact that the allowance for NI contained within FPS’ charges was nothing more than an approximation. It was known to be a flat rate charge at 12.8 per cent (see Mr Crane’s e-mail of 22^nd December 2004 to Mr Shirley, Mr West’s e-mail of 29^th September 2005 to Mr Turner-Tymm forwarded to Mr Shirley, and Mr Allen’s e-mail of 10^th October 2006 to Mr Crane), with no attempt to take into account the secondary threshold. This was a matter of dissatisfaction at Halfords, as the e-mail exchange between the Tevlins on 2^nd October 2009 demonstrates, as does Halfords’ view, demonstrated in consideration of the 2010 tender process, that FPS’ reluctance to apply actual NI was a weakness. Halfords was also aware of the TSS and its effect.

When the term “real NI” was adopted by FPS in March 2010, there was no misunderstanding or confusion about what it meant, because Mr Reddy explained to Mr Shirley, and agreed with him, that it was based upon a 40-hour week and took into account the secondary threshold. It remained an approximation. When the term “real NI” was adopted for use between these parties it bore the meaning described and agreed at the meeting mentioned, and was not a shorthand for a precisely calculated true cost of NI that would be the subject of after-the-event reconciliations. I find therefore that throughout the time that the contractual relationship subsisted between the parties, Halfords knew that the NI element of the charges raised by FPS was nothing more than an approximation, and that there never was any expectation (save to the very limited extent concerned with threshold changes in April 2011, explained in evidence by Mr Reddy) that any after-the-event adjustments would be made so as to return any “excess” payments in respect of NI which had been received by FPS. The very fact that Halfords, over a period of years, attempted to persuade FPS to reduce its NI element of its charge, and was disgruntled by FPS’ refusal to do so, leading to Mr Shirley’s pencil-sharpening advice to Mr Reddy, is strongly supportive of FPS’ case in this regard. I do infer, though it has not been necessary for me to reach my conclusions to do so, that Halfords appreciated that the TSS scheme was in operation, and the effect of such a scheme.

As for WTD, I find that, similarly, Halfords appreciated all along that it was making a flat rate payment to FPS as an allowance for this item. This appears from the same documents as those which identified the flat rate nature of the NI charge, for example, Mr Crane’s e-mail of 22^nd December 2004. In those circumstances, it was inevitable that unless every Worker took every day’s holiday to which he or she was entitled, and on leaving employment received payment for all accrued holiday pay, there would be a benefit to FPS. This point cannot have been missed by Halfords. Ms Muir’s evidence, although she was not employed by Halfords at the relevant time, demonstrated an appreciation that anyone exercising her functions for a large employer would have had, namely that to receive holiday pay, a Worker needs to take holiday (though she was not addressing the situation of a Worker leaving their employment). This was all background and information reasonably available to Halfords as well as FPS.

I turn next to consider the ordinary and natural meaning of the Conditions and the other documentary exchanges between the parties. The starting point is the Conditions themselves, which provided, by clause 3:

“(i)

The Client agrees to pay the hourly charges plus VAT of FPS advised at the time of booking the Employee for all hours worked inclusive of rest periods. Travelling, hotel and other expenses as may be agreed shall be itemised in FPS's invoice in addition to this charge.”

(Emphasis added)

When the e-mail of 22^nd December 2004 was forwarded to Halfords, it was accompanied by a document headed “First Personnel – Pay & Charge Rates”. This gave a breakdown, by shift, for various categories of worker, depending upon the type of hours being worked, basic, overtime, with or without attendance bonus, and Sundays and Bank Holidays. Each line identified the pay level and charge rate. For example, for day time warehouse operatives working basic hours with no attendance bonus, the pay level was £4.85, and the new charge rate was £6.72. Quite clearly, the sum to be paid under clause 3(i) was £6.72, because this was the hourly charge.

In my judgment, FPS’ composite rate case is stronger in relation to the NI and WTD elements. This is because, for reasons described, these were necessarily approximations as to cost. Even more so this was the case in relation to NI than WTD, because in the case of the latter it was always (at least theoretically) possible that any individual Worker might take all their holiday, and leave with no accrued entitlement, or ask for it on departure. When NI was calculated at the full rate ignoring the secondary threshold altogether, it was inevitable that the allowance for it would be too high. These considerations do not apply to the pay rate, because a Worker could always be paid at the rate mentioned in the particulars of charges.

The conclusion that I have reached, however, is that no distinction should be drawn between the various elements in terms of whether one element was warranted as an actual cost, subject to a repayment liability if that actual cost were not incurred, and another element in respect of which this would not be the case. I consider that in respect of none of the elements was any such warranty given, whether as a contractual term, or the term of a collateral contract. I reach this conclusion for the following reasons:

These conclusions, I consider, represent the ordinary meaning of the words used; no intelligent bystander would consider that Halfords’ suggested warranties were intended. I reach a similar conclusion in respect of the management element of the charges. I do not consider that it is possible to spell out any warranty or representation, to the effect that the fee was a fixed amount that represented FPS’ profit, and that if this was not the case, some of the fee would be refundable.

I do not consider that when Mr Reddy, in his responses in December 2009 to Halfords’ Request for Information, said that FPS felt that the transparent calculation that he disclosed was “effectively cost plus” that this amounted to any kind of warranty. It was, properly understood, nothing more than an expression of opinion (importantly, the relevant introductory words were “We feel”), that having disclosed the calculation, with its various elements, the calculation could be labelled “costs plus”. The 2011 statement to similar effect is of no materiality; Halfords did not award work pursuant to it.

For equivalent reasons, I reject the alternative formulation of the claim on the basis of a representation, whether analysed in tort or contract. The terms used in the contractual documents, and in other documents, do not bear the meaning that Halfords seeks to attribute to them, for the reasons I have given above in relation to the contractual analysis. Further, I reject the suggestion that there was any reliance placed upon the suggested representations; equally, Halfords was not induced to enter the contractual arrangements as Halfords has suggested. Halfords’ overriding concern was the total sum that it would be paying, namely, the level of the composite charge. It was such a consideration that caused Halfords to award work to FPS after it moved on its rates in March 2011. Furthermore, I do not accept that Halfords ever interpreted the statements made in the sense now advanced. The clearest demonstration of this is Halfords’ documents that reveal its discontent with FPS’ NI charges, and the fact that Halfords did not start to make noises about reconciliations until Mr Gardner had raised the issue by October 2011 as demonstrated in Mr Moses’ e-mail to the Reddys sent on the 10^th of that month. Still further, I reject the submission that there was a duty of care in relation to the matters in question. As Mr Pepperall submitted, these were arm’s length contractual negotiations between commercial parties, one of which was quoting the rates that it proposed to charge. There is no question, subject to the Quistclose issue which I consider below, of any fiduciary relationship between these parties, in which case an obligation upon a fiduciary when dealing with his beneficiary to make full disclosure, and prove affirmatively that the transaction was fair, might arise; see per Millett LJ, as he then was, in Bristol & West BS v Mothew [1998] Ch 1, at page 18.

On all of these issues, I consider, therefore, that the counterclaim fails. Given this conclusion, it is strictly unnecessary to reach any firm decision on the issue of the authority of any of FPS’ representatives to make the representations relied upon by Halfords. I would, however, be inclined to accept Mr Casey’s submission that I should infer that the representatives concerned had actual authority to effect the communications which they did. They are consistent with the approach taken by FPS when Mr Reddy corresponded with Halfords at a later date, and there is no suggestion that any senior member of FPS’ staff ever disavowed the statements made, or sought to correct them. I should add, also, that in light of the pleading of the Amended Reply, which expressly admits that FPS explained its methodology from time to time, I would not have regarded it as open to FPS, without an application to amend being permitted, to have pursued the issue; the pleading as it stands suggests that Mr Casey’s invitation to infer authority was well-founded, although, in the event, it leads nowhere.

Did Halfords pay the holiday entitlement element of the charge to First for the sole purpose of paying the temporary workers’ holiday pay, such that a Quistclose trust arose?

Did Halfords pay the NI element of the charge for the sole purpose of paying First’s NI liability to HMRC in relation to the temporary workers, such that a Quistclose trust arose?

Mr Casey, rightly in my judgment, did not press Halfords’ case on these issues, in his closing submissions. Nevertheless, since Halfords did not formally abandon this part of its case, I must deal with the issues, albeit briefly.

In light of my conclusions, expressed above, in relation to the nature and construction of the agreement between the parties, I am satisfied that the sums paid by Halfords were paid by way of a composite charge for the services provided by FPS. Objectively ascertained, there was no intention that any part of the monies paid were paid solely for the purposes mentioned in these issues. This is sufficient to have prevented any trust from having arisen. Indeed, I do not accept that anyone at Halfords subjectively entertained an expectation that particular elements of the charge would be applied solely for any particular purpose. I would add that other features of the arrangements, or lack of them between the parties, also point to the conclusion that there was no intention to create a trust; for example, the complete absence of any provision for reconciliations as to sums now said to have been due to Halfords, and the absence of any prohibition upon FPS concerning the mixing of funds which it was entitled to treat as its own with those funds, which on Halfords’ case, beneficially belonged to Halfords.

In the circumstances, I reject Halfords’ case as to the existence of a Quistclose type trust.

Is First liable to Halfords for £69,069.79 in relation to holiday pay and its invoice 14 March 2012 as (i) damages for breach of contract or (ii) restitution for unjust enrichment?

Halfords’ case is that by paying FPS’ charges which included the Holiday Pay Element, it pre-paid holiday pay in respect of the Workers, but that FPS did not pay the accrued holiday pay to Workers at the time of transfer to Staffline.

It is common ground between the parties that pursuant to Regulation 4(2) of TUPE all the liabilities under the Workers’ contracts of employment were transferred to Staffline. Staffline paid the transferred staff in respect of accrued holiday pay, and then invoiced Halfords for this in the sum of £69,069.79 including VAT, and Halfords paid this sum in April 2012. Mr Casey pointed out that Mr Laurence Reddy, by e-mail on 13^th December 2011, in response to a request for information from Staffline, forwarded a spreadsheet of information to Staffline, stating that he had “left the holiday pay details out as we will pay up at the point of transfer.”

Halfords’ case is that it is entitled to recover the sum invoiced by, and paid to, Staffline. It says it has paid the holiday pay twice, once to FPS as payment of the charges, and once to Staffline. The sum is claimed as damages for breach of contract, or restitution for unjust enrichment.

In my judgment, Halfords’ claim, however formulated, must fail. There was no contract under which FPS undertook to Halfords that it would make payments of holiday pay to the Workers. It had an accrued liability to the Workers in respect of holiday pay, but that was transferred to Staffline under Regulation 4(2) of TUPE. The statement made by Mr Laurence Reddy to Staffline was not actionable by Halfords, and it is, correctly, not pleaded that it was. As for unjust enrichment, Mr Casey puts the case on the basis of the principle formulated at para 20-01 in Goff & Jones, The Law of Unjust Enrichment, 8^th edition:

“To make out a claim for contribution or reimbursement, the claimant must show that he discharged the defendant's liability to a third party and that (1) the claimant and the defendant were both liable to the third party, (2) who was forbidden to accumulate full recoveries from both of them, but (3) who could choose to recover in full from either of them, and that (4) some or all of the burden of paying the third party should ultimately be borne by the defendant.”

In my judgment, Mr Casey’s submission faces a number of insuperable difficulties. First, Halfords has not established that FPS had a liability to Staffline. Unless Mr Laurence Reddy’s statement is demonstrated to have had legal force in connection with accrued holiday pay, there was no liability to make any payment to Staffline, or at the very least none has been established; the basis for it is not articulated. Secondly, it is not demonstrated that Halfords and FPS both had a liability to Staffline. An invoice addressed to Halfords may have been raised by Staffline, but that did not render Halfords liable to pay it. Thirdly, there is no established basis upon which Staffline could have maintained a claim against both of FPS and Halfords. As Mr Pepperall pointed out, Staffline could have protected itself by seeking an indemnity from FPS in respect of the accrued holiday pay liabilities; taking such a precaution on a TUPE transfer is described as “common practice” in the Department of Business, Innovation & Skills publication “Employment Rights on the Transfer of an Undertaking” (January 2014), at page 15. If such an indemnity had been obtained (which it was not), it would still not have overcome Halfords’ problems in this case, because Halfords itself had no liability to Staffline in respect of accrued liabilities for holiday pay.

In the circumstances, this part of Halfords’ counterclaim must also fail.

Did First overcharge Halfords by taking into account overtime when calculating holiday entitlement accruing to the temporary workers? (as Halfords contends that it did because it applied WTD to voluntary overtime)

Halfords’ pleaded case is that the Holiday Entitlement Element of FPS’ charges took overtime into account when calculating the holiday entitlement accruing to employees. Halfords maintains that overtime should have been disregarded because overtime was voluntary, and that article 7 of the Working Time Directive does not require holiday pay to be calculated so as to equate to average pay actually received where there is no obligation on the employer to provide overtime and no obligation on the employee to accept it if it is offered.

This issue does not, I consider, arise in light of my findings that, on a proper construction of the agreement between the parties, the charge raised by FPS was a composite rate in the sense described above. I can, therefore, deal briefly with the legal issue which would have arisen had I not reached that conclusion. I would have rejected Halfords’ claim on the additional basis that I am satisfied, in light of the authorities to which I was referred (namely, Bear Scotland Ltd v Fulton & others [2015] 1 CMLR 40, and Patterson v Castlereagh BC [2015] NICA 47), that it has not been established by Halfords that WTD was overcharged by taking into account overtime. Bear Scotland was decided by Langstaff J, the President of the Employment Appeal Tribunal. He held, in the case of non-guaranteed overtime, that the effect of article 7 of the Working Time Directive was that in the case of “normal pay”, that is pay “which is normally received”, on the facts of that case, overtime was normally required to be worked, so that remuneration for it formed part of the worker’s normal remuneration. I note that this decision was followed by Singh J in Lock v British Gas Trading Ltd [2016] ICR 503. This principle established in Bear Scotland was extended, by the Northern Ireland Court of Appeal in Patterson to voluntary overtime; Gillen LJ, delivering the judgment of the court, said at para 21 “in principle there is no reason why voluntary overtime should not be included as a part of a determination of entitlement to paid annual leave. It will be a question of fact for each Tribunal to determine whether or not that voluntary overtime was normally carried out by the worker and carried with it the appropriately permanent feature of the remuneration to trigger its inclusion in the calculation.” Applied to this case, the position would be, therefore, that where Halfords is seeking to demonstrate that there has been an over-payment in relation to WTD, the burden of proof being upon it in that regard, it needs to establish by admissible evidence that the overtime payments concerned did not form part of any Worker’s normal remuneration, but Halfords has not done so.

Mr Casey relied on the fact that the terms of engagement that FPS adopted as between itself and Workers provided that calculation for payments for annual leave would be by reference to hours not attracting overtime rates. In my judgment, however, this cannot affect the pleaded issues as to whether the rates charged as between FPS and Halfords were composite rates, and whether a WTD liability actually arose on the proper interpretation of article 7 and the applicable Regulations. For similar reasons, in my judgment, the fact that, after the event in the past a rebate was allowed by FPS in respect of some WTD, cannot affect the true interpretation of the contractual arrangements.

Halfords’ claim on this issue therefore fails for two reasons; first, because the rate charged was a composite rate, so that the actual WTD liability in respect of overtime was irrelevant, and, secondly, because Halfords has not established that the overtime remuneration concerned did not form part of a Worker’s normal pay.

For the reasons explained earlier in this judgment, FPS’ claims succeed to the extent described, and it is entitled to recover interest, upon them, subject to adjustment as noted above. I hope that it will be possible for the parties to agree the precise figures in respect of both the claims, and interest, but if this does not prove possible, I will hear further argument.

The counterclaim fails, and must be dismissed.

Finally, I must express my real gratitude to all counsel for their excellent submissions, written and oral. Their attention to detail, and the thoroughness and clarity of the material which they have placed before me, including the bundles of authorities, was of the greatest possible assistance. I express my appreciation also to their respective instructing solicitors, whose work on the trial bundle, in agreeing, and putting together, and keeping up to date during the trial, a great many documents, in a sensibly ordered fashion, was commendable.

I shall hand down this judgment in London on 20^th December 2016. No-one need attend. A hearing to deal with consequential matters should be listed at an early date. Time for appealing this judgment will run from the date of that hearing.