Pinfold North Ltd v Humberside Fire Authority

Mr Michael Price carried out the duties of Chief Finance Officer for the Humberside Fire Authority (“the HFA”) between 1995, just before it was formed in 1996, to 2007. He had been employed by Kingston upon Hull City Council (“Hull CC”) up to 2001 when he retired. He was asked to stay on as Chief Finance Officer. In 2003 Mr Price formed himself into a company, Pinfold North Limited (“Pinfold”), which entered into a contract with the HFA as a vehicle for remunerating him.

In 2007 the HFA formed the view that his appointment as Chief Finance Officer as from the time when he ceased to be employed by Hull CC had been ultra vires and that therefore the contractual arrangement had been void. Concerns arose concerning the lawfulness of the appointment; whether it amounted to a breach of public procurement rules; whether there was the power to contract with a company in such circumstances. These concerns led to the termination of the contract between the HFA and Pinfold by letter of the 1^st November 2007. The HFA have agreed to pay him for the services that he had rendered and to that extent the claim has been admitted.

Pinfold claims damages in respect of wrongful termination of the contract on Mr Price’s behalf. The HFA seeks summary judgment under Part 24 Civil Procedure Rules on the ground that the Claim has no real prospect of success. The simple basis of the application is that HFA as a matter of law had no statutory power to appoint Mr Price as Chief Finance Officer, because he was not an employee of a relevant authority; as a result, it is argued the HFA had no power to contract with Mr Price or with his company to remunerate him; moreover, only an individual could be appointed to the office of Chief Finance Officer.

Mr Price’s case is that he (not Pinfold) was appointed as an individual to be Chief Finance Officer; that the contract between Pinfold and the HFA was merely the mechanism whereby he was so appointed and remunerated; that as a matter of law an officer of the HFA does not have to be an employee of that or any other relevant Local Authority.

Much, therefore, turns on the interpretation of section 112 Local Government Finance Act 1988 which reads:

“112.— Financial administration as to certain authorities.

“(1)

On and after the commencement day each authority mentioned in subsection (2) below shall make arrangement for the proper administration of its financial affairs and shall secure that one of its officers has responsibility for the administration of those affairs.

…

“(b)

any [combined fire and rescue authority].”

Mr Buck, counsel for Pinfold, submits that on a plain reading of section 112 there is no requirement that an ‘officer’ is an ‘employee’; that, if such had been the intention, the Act should have read ‘one of its employees’ rather than ‘officers’; that Mr Price had indeed been appointed as one of the HFA’s officers when he was appointed treasurer.

The statutory framework is as follows.

The HFA is the combined fire and rescue authority for the Humberside region. A creature of statute it was formed on 1st April 1996 pursuant to the Humberside Fire Services (Combination Scheme) Order 1995 SI 1995/3132 (“the Regulations”). As a result, as Ms Davies, counsel for the HFA, correctly submits, it derives its powers solely from statute. The establishment of a combined fire and rescue authority was permitted and regulated by the Fire Services Act 1947 (“the 1947 Act”), now the Fire and Rescue Services Act 2004 (“the 2004 Act”). Section 7 of the Schedule to the Regulations states that:

“The [HFA] shall appoint a treasurer of the combined fire service fund.”

1995 to 2003

It is common ground that Mr Price was appointed as the HFA’s Treasurer in late 1995, immediately prior to its starting to provide fire and rescue services from 1st April 1996. It is Mr Price’s evidence that he was appointed to fulfil the rôle of Treasurer created by Section 7 of the Schedule to the regulations. At this time Mr Price was also an employee of Hull CC. He was however paid separately by the HFA for the rôle of Treasurer.

In July 2001 he retired from that employment, although the HFA requested that he stay in his rôle as its Treasurer, as he did.

During this period Mr Price performed all the statutory obligations required of him. He received remuneration and reimbursement of expenses incurred. He was treated and considered to be the HFA’s Chief Financial Officer by all interested parties. Those included the HFA itself, its external auditors, the monitoring officer and all relevant government departments. He signed off all statutory returns in the capacity of the Chief Financial Officer. His rôle was not questioned until 2007.

2003 to 2006

In 2003 there was an external review of the remuneration of the HFA’s Chief Fire Officer, other senior officers and the Treasurer (Mr Price). At this time Mr Price established Pinfold as a close company within the meaning of the Income and Corporation Taxes Act 1988.

It is Pinfold’s case that in May 2004 the HFA entered into a 3 year contract with the Claimant in respect of the services being provided by Mr Price as its Treasurer (“the 2004 contract”). The agreement was on the basis of a daily rate of £450 with flexible days and annual increases with respect to the fee. There is no dispute that the HFA entered into this contract. The dispute is whether it had the statutory power to do so. Pinfold raised invoices to the HFA in its own name that were discharged in full.

During this period Mr Price remained the HFA’s statutory Treasurer and fulfilled the requirements of a Chief Financial Officer. He was treated as such by the HFA and all relevant third parties. The HFA sent Mr Price a letter dated 24th June 2004 confirming his position as Treasurer. It is Pinfold’s case that the only difference with this arrangement compared with that which existed prior to 2004 was that instead of paying Mr Price for his services, the HFA made payment to Pinfold on his behalf.

2006 to 2007

In 2006 a report was prepared for the HFA entitled ‘Fire Authority Treasurer Workload and Activity’. This detailed the increased workload being undertaken by Mr Price. It proposed an increase in the daily fee to £500 and an increase in the number of days worked from 40 to 60. The HFA then entered into a new contract on such terms to run to 31st March 2010 (“the 2006 contract”).

From 2006 onwards Mr Price fulfilled the functions of statutory Treasurer with the consent and acceptance of both the HFA and all relevant third parties. He signed off documents in his own name and in the capacity as the HFA’s Treasurer and performed all the statutory obligations required of such an appointee. Pinfold invoiced the HFA, such invoices being discharged in full. This arrangement apparently raised no concerns from either the HFA or any third parties, including the Audit Commission.

In October 2007 Mr Price was told that the 2006 contract was in contravention of EU Procurement legislation and later on the 24th October he was informed that the contract was ultra vires and that he was to cease all work. The termination of the contract was confirmed by letter of the 1^st November 2007. The HFA then refused to discharge outstanding invoices that had been raised by the Claimant and were outstanding.

Proceedings were issued by the Claimant on 4th November 2009. The HFA served an acknowledgement of service indicating admission of part of the claim, namely the entitlement to past pay for work actually done. It has not filed and served a Defence. Instead it issued this application for summary judgment on the 9th December 2009.

The HFA’s case is that any contract between the Claimant and itself was ultra vires as to the powers of the HFA and is therefore void. It admits that it is indebted to the Claimant in the sum of £11,447.76 (the final invoice). It follows that the HFA has benefited from the works completed for it by Mr Price.

In effect this application serves as a preliminary issue of law, based on the facts on which the Claim is based. If Ms Davies’ submissions on the law are upheld, then it follows that the contract between the HFA and Pinfold is void; that Pinfold’s case based on that contract is bound to fail. If Mr Buck’s submissions on the law are upheld, then there may be issues of fact for trial. There is nothing to be gained, therefore, by rehearsing those issues for the purpose of determining this application.

Insofar as it is suggested on behalf of the HFA that from 2004 onward the functions of the Chief Financial Officer were being performed not by Mr Price but by his company, in my view, that can readily be resolved for the purposes of this application. Mr Buck has made it clear that it is no part of Pinfold’s case that those functions were being performed by the company; rather that it was Mr Price, its employee, who was appointed as an individual to the office of Chief Finance Officer; that there has never been any question of Pinfold carrying out the functions in its own name; that it was merely the vehicle for Mr Price’s remuneration. If necessary, that would form an issue fit for trial. However, it would be as nought, if the contract as a matter of law were held to be void.

In support of her main submission Ms Davies submits that Mr Price was a contractor rather than an employee; that the obligation on the HFA was to appoint one of its employed officers to act as Chief Finance Officer. Her argument is that section 112 of the Local Government Finance Act should be read consistently with the Local Government Act 1972; that the two Acts are intended to form part of a comprehensive scheme relating to the operation of local authorities and other public authorities and for that reasons should be read consistently; that section 151 of the 1972 Act imposes a duty on a local authority to appoint “one of its officers” to have responsibility for the administration of its financial affairs; that section 112 of the later Local Government Finance Act 1988 is in the same terms and must have been intended to have the same effect; that the Acts cross-refer to one another and there is nothing to suggest that the expressions “officer” and “one of its officers” in one Act mean or are intended to mean something different in the other; that, on the contrary, for example, the duties imposed on the chief finance officer by sections 113 and 114 of the Local Government Finance Act 1988 apply in terms to chief finance officers of other local authorities appointed under s 151 of the 1972 Act and they are treated identically.

Moreover, Ms Davies submits that 1972 Act in this context uses the term “officer” in the sense of, and interchangeably with, an employee or staff member: section 112 is headed “Appointment of staff” and imposes a duty on local authorities to appoint “such officers as they think necessary” for the proper discharge of their functions, such officers to hold office on such reasonable terms and conditions, including as to remuneration, as the authority thinks fit; section 113 is headed “Placing of staff of local authorities at disposal of other local authorities” and permits local authorities to place “officers employed by” them at the disposal of other local authorities. For the purposes of superannuation, such an officer’s service is deemed to be rendered to the authority “by whom he is employed”. Ms Davies submits that, as a matter of language, “officer” means a member of staff employed by the local authority, but that also it shows that an express power is needed for a local authority to use the services even of an officer employed by another authority (let alone a self-employed contractor).

Ms Davies’ cites sections 114 and 115 of the 1972 Act as referring to “officers employed by” local authorities. Further, section 115 imposes on officers employed by local authorities a personal requirement to account for monies and property committed to their charge. Section 117 of the Act imposes obligations on officers “employed by” local authorities.

The problem, however, is that in none of this legislation is the term ‘officer’ defined. The assumption behind Ms Davies’ submissions is that all Local Authority officers are employees; that in both the 1972 and 1988 Acts, when there is reference to one of its officers, that has to mean one of its employed officers, or officers who are also employees of the authority.

There is no doubt that all employees of a Local Authority are its officers. The essential question that arises is whether all its officers are necessarily employees. Mr Buck submits that the word ‘officer’ without an express definition in either the 1972 or the 1988 Act, if given its ordinary meaning, does not necessarily include only people who are in a contract of employment with the relevant authority.

In this judgment I have referred to ‘the relevant authority’, because it is common ground that an employee of one local government authority may be lent to another and for the purposes of the legislation be treated as the employee of that other authority.

So Mr Buck submits simply that the HFA is empowered to appoint someone who is neither an employee of the HFA nor of a relevant local government authority to be its Chief Finance Officer; that all that section 112 requires is that there should be appointed an officer who is given the responsibility for ‘the proper administration of its financial affairs’; that there is nothing in the simple wording of that section which requires that officer also to be one of its employees, although the wording does require that person already to be an appointed officer of the authority.

The Oxford Dictionary defines the word ‘officer’ as ‘A person who holds a particular office, post, or place.’ For the purposes of this application, that definition does not advance the matter either way, except insofar as I have to consider the term ‘officer’ in its ordinary usage. Nevertheless, if Ms Davies is right and the proper interpretation of ‘officer’ in the 1972 and 1988 Acts is that the term only encompasses an employee of a relevant authority, then such would be a good reason to depart from ordinary usage.

Comparable issues of law and fact were considered in Lincolnshire County Council and Another v Hopper [2002] ICR 1301 in which Wall J reviewed the relevant authorities. Mrs Hopper was appointed as a registrar of births, deaths and marriages by the Local Authority. On a preliminary issue as to jurisdiction, the local authority contended that she was not an employee but an office holder. The employment tribunal held that, although a registrar held office “during the pleasure of the Registrar General” pursuant to section 6(4) of the Registration Service Act 1953, the local authority had power to dismiss a registrar under the local scheme of organisation and that a registrar was both an office holder and an employee of the local authority for the purposes of the Employment Rights Act 1996. The Employment Appeal Tribunal held that because the local authority was unable to exercise the power to dismiss which could only be done by the Registrar General and it was a necessary term of any contract of employment that the employer had the right to dismiss the employee, therefore, the applicant was not the local authority's employee.

Wall J considered the case of Miles v Wakefield Metropolitan District Council [1985] ICR 363; [1987] ICR 368. Mr Miles was a superintendent registrar of births, deaths and marriages. The local authority was responsible for paying his salary. During the summer of 1981, he took industrial action. The local authority after due warning made proportionate deductions from his salary for which he sued. At first instance, the judge dismissed his claim, holding that Mr Miles's failure to fulfil his statutory duty entitled the local authority to make the deduction on the basis that he was to be assimilated with local government officials, and only entitled to be paid for work done. By a majority, the Court of Appeal reversed the judge's decision taking the view that under the provisions of the Registration Service Act 1953 Mr Miles was appointed as a salaried holder of an office by the local authority who, although it was not his employer and did not have any contractual relationship with him, was under a statutory obligation to pay his salary whilst he remained in that office. The majority held that the holder of such an office was not liable to have any part of his salary withheld for being in breach of his statutory obligations, the only remedy for any such breaches being dismissal from office by the Registrar General. Accordingly, notwithstanding admitted breaches by Mr Miles of his statutory obligation, the local authority had acted unlawfully in making the deduction.

As Wall J pointed out, in the Court of Appeal [1985] ICR 363, there are various statements by the majority in favour of the proposition that a registrar is an office holder not an employee. Parker LJ, at p 369, having reviewed the statutory provisions, stated that they appeared to him to point strongly to the conclusion that all officers in the registration service are statutory office holders, and are not in contractual relationship with the relevant council.

The decision of the Court of Appeal was reversed in the House of Lords [1987] ICR 368. The House held that, although Mr Miles was not a servant of the local authority under a contract of employment but the holder of an office, his position was similar to that of an employee (my italics) and for the purposes of the appeal there was no logical distinction between them. … the relationship between Mr Miles and the local authority was treated as being analogous to that of an employee employed by the local authority under a contract of service.

The House of Lords did not disagree with the Court of Appeal that a superintendent registrar was an office holder and not an employee, but Lord Oliver raised the possibility of a contract of employment existing parallel with the status of office holder.

Wall J went on to consider decision of the Employment Appeal Tribunal in Johnson v Ryan [2000] ICR 236. This case concerned a rent officer who brought a complaint of unfair dismissal against the chief rent officer, the local authority and the Secretary of State. An industrial tribunal, on a preliminary issue as to jurisdiction, dismissed the complaint on the ground that a rent officer was an office holder appointed under section 63 of the Rent Act 1977, and, as such, was not an employee employed under a contract of employment as defined in section 230(2) of the Employment Rights Act 1996.

The appeal tribunal held that some office holders were also employees and that, in determining whether an office holder was an employee, the factual circumstances were relevant. In particular, important factors were whether or not there was a payment of salary and whether it was fixed; whether the worker's duties were subject to close control by the employer or whether the worker worked independently. The provisions of section 63 of the Rent Act 1977, the appeal tribunal found, did not exclude the possibility of a rent officer being also an employee and accordingly, adopting a purposive approach in relation to the protection of employees, and holding that it would be inequitable for the applicant to lose the statutory protection to which she had been entitled in her previous positions with the local authority, the appeal tribunal found, on the facts, that she was both an office holder and an employee.

This in effect was the opposite position to Mr Price’s situation.

Morison J accepted that there was no clear authority on this point hence considered that any doubt should be resolved in the applicant’s favour by reason of what was protective legislation which should be construed in a wide, inclusive fashion. At p 243 he said:

“On the facts of this particular case we consider that the tribunal in this case erred in law in holding that the applicant was an office holder only and not entitled to bring a claim of unfair dismissal. The question that the tribunal should have asked itself was whether she was an employee, on the basis that she was also an office holder. It was an error to concentrate solely on whether the applicant was an office holder. On the basis of the facts, she was in the position of being both an office holder and an employee of the local authority.”

Whilst the discussions in these cases is of general relevance in that courts have considered on differing facts whether a person who holds an office with a particular authority may or may not be an employee, there is no guidance as to how as a matter of law such questions should be determined. It therefore falls to be a matter of interpretation of the relevant statutory provisions.

In my judgment, as a matter of interpretation, I can find nothing in the 1972 and 1988 Acts or in the authorities cited to me to restrict the appointment of officers of the HFA to employees. Whilst its employees are necessarily officers, in my judgment, its officers are not necessarily employees; nor is there any statutory requirement that that should be so. Whilst the 1972 Act refers to the duties and obligations of officers who are employees, there is nothing in the Act which excludes the appointment of an officer who is not an employee. Interestingly, the Greater London Authority has an express provision under a comparable statutory provision (Footnote: ¹) which does require that its Chief Finance Officer is an employee of the authority (Footnote: ²). In my view, as Mr Buck submits, that serves to underline the interpretation which he supports. In my judgment, in the absence of an express provision in the 1988 Act to require that the Chief Finance Officer should be an employee of the relevant authority, the only requirement in section 112 of the 1988 Act is that the Chief Finance Officer should be an officer of the HFA; Mr Price, in my judgment, could be appointed an officer of the HFA without necessarily being an employee; he was so appointed as treasurer; the HFA, therefore, was empowered to appoint him as Chief Finance Officer.

What is clear and not disputed by Mr Buck is that as a matter of law Pinfold could not have been appointed to the office by means of the contract between the HFA and Pinfold. However, it is not Pinfold’s case that it was so appointed, rather that Mr Price was. In my view, there is nothing in the contract that stipulates that anyone or any body other than Mr Price was to hold the office of treasurer and Chief Finance Officer.

As a result, I resolve the issue of law in favour in Pinfold and the defendant’s application fails. Following the filing and service of the Defence, there will be directions to an early trial. It would be helpful if a draft Order with directions could be prepared. I am content to consider the question of costs by written submissions (email).