Case No: A2/2009/1000
Neutral Citation Number: [2010] EWCA Civ 410
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
(HIS HONOUR JUDGE McMULLEN QC)

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Thursday, 18th March 2010

Before:

LORD JUSTICE THORPE
LADY JUSTICE SMITH
and
MRS JUSTICE BARON

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	LEEDS CITY COUNCIL	
Appellant 	
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WOODHOUSE & ANR	

Respondent	

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(DAR Transcript of 
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Mr D Jones (instructed by Leeds City Council) appeared on behalf of the Appellant.

Mr M Whitcombe (instructed by Morrish Solicitors & Ford and Warren Solicitors) appeared on behalf of the Respondent.
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Judgment
Lady Justice Smith:  

1.	This is an appeal from the order of HHJ McMullen QC dated 4 August 2009 made in the Employment Appeal Tribunal ( EAT), dismissing an appeal by Leeds City Council against the order of Employment Judge Forrest in the employment tribunal (ET) in Leeds on 12 September 2008. The claim under consideration had been brought by Mr Woodhouse and alleged racial discrimination and harassment by his employers, West North West Homes Leeds Ltd and also by Leeds City Council and one of its employees, Mr Malcolm Chapman.  The Employment Judge refused an application by Leeds City Council and Mr Chapman to strike out the claims against them.  The EAT upheld that decision.  Permission to appeal to this court was given by Rimer LJ.

2.	Leeds City Council (“the council”) owns a large stock of residential properties.  It used to manage those properties directly, but in 2003, in accordance with Government policy, it created a number of so-called arms-length management organizations to carry out its management functions pursuant to a series of management agreements.  One of the arms-length organizations is now called West North West Homes Leeds Limited (“WN”).  WN subcontracts some of its functions to others.  For example, it subcontracts its personnel function to a company called Peninsula Business Services.  More importantly for present purposes, it contracts its requirement for building maintenance services to the Property Services Division (“PSD”) of the council, pursuant to a service agreement.  Mr Chapman is an employee of the council within that division.

3.	Mr Woodhouse is black.  He is of African/Caribbean origin.  He had been employed directly by the council until the management function was hived off, when his employment was transferred to WN.  At the material times, he was employed as WN’s Principal Regeneration Officer.  His duties appear to have brought him into contact with Mr Chapman in at least two ways.  Mr Woodhouse had responsibility for the quality control of the work of the PSD.  Also, it seems that both men were accustomed to attend meetings of a joint committee of WN and PSD personnel.

4.	In the ET1 lodged in May 2007, Mr Woodhouse described a background of difficult relations at work which had caused him to raise a grievance in 2005.  One of his complaints at that time was of racial discrimination by Mr Chapman.  This grievance had not been resolved to Mr Woodhouse’s satisfaction when, in late 2006 or early 2007, he was told that Mr Chapman had made further racially derogatory remarks about him at two meetings at which Mr Woodhouse had not himself been present.  On 24 January 2007, Mr Woodhouse lodged a second grievance using the official form, which he said was headed “Leeds City Council/Leeds Northwest Homes”.  Soon afterwards, Mr Woodhouse received an acknowledgment of that grievance from Miss Patricia Wanless, an employee of WN.  

5.	In May 2007, Mr Woodhouse received a letter from a Mr Patrick Holmes, an employee of the council, describing the steps that he had taken to investigate Mr Woodhouse’s grievance.  Mr Woodhouse was deeply dissatisfied with the content of that letter and commenced proceedings against WN, the council and Mr Chapman.  The council and Mr Chapman applied to strike out the proceedings against them on the ground that there was no jurisdiction to bring a claim against the council or the council’s employee, as Mr Woodhouse was not employed by the council.  

6.	Although the application was described as a strike-out, it was not treated as such.  A considerable amount of evidence was put before the Tribunal and the hearing was treated as the determination of a preliminary issue.  Eventually, the issue of jurisdiction turned upon whether Mr Woodhouse was a contract worker of the council within the meaning of that term in section 7 of the Race Relations Act 1976.  Section 7 provides as follows: 

“(1) This section applies to any work for a person (‘the principal’) which is available for doing by individuals (‘contract workers’) who are employed not by the principal himself but by another person, who supplies them under a contract made with the principal. 

(2) It is unlawful for the principal, in relation to work to which this section applies, to discriminate against a contract worker …

“(d) by subjecting him to any other detriment.”
 
7.	The Employment Judge heard evidence about the contractual relationship between WN and the council and made careful findings of fact, none of which is or could sensibly be challenged on this appeal.  Those findings of fact are essential to an understanding of the judge’s decision, and I will set them out in full: 

“6.1 Leeds City Council, the First Respondent, had a large stock of council houses.  The Government was concerned that the management of council housing by local authorities was not as efficient as it might be and brought forward proposals in 2000 under which councils could, with the consent of the Secretary of State for Housing, create Arms Length Management Organisations (‘ALMOs’), with a view to managing them more effectively.  As a result, in February 2003, Leeds City Council created six separate ALMOs to manage their housing stock for them.  In 2007, in a further reorganisation, the six ALMOs were merged into three.  North West Homes Leeds merged with another ALMO to form the Second Respondent to this claim, West North West Homes Leeds Ltd.

6.2 ALMOs are companies limited by guarantee; the sole shareholder of West North West Homes Leeds Ltd (“WNWHLL”) is Leeds City Council.  WNWHLL is run by a Management Board composed of four Directors, who represent tenants, four Directors who are councillors of Leeds City Council, and four independent Directors.

6.3 Leeds City Council retains ownership of the housing stock, and has delegated its management to the various ALMOs.  Staff who had previously carried out their duties as employees of Leeds City Council Housing Department were transferred under the Transfer of Undertakings (Protection of Employment) Regulations 2006 to the appropriate ALMO.

6.4 Mr Woodhouse was one of these staff.  He had commenced employment for Leeds City Council on 21 December 1992, and in February 2003 was a Project Officer in the Housing Department.  He then transferred to North West Homes Leeds Ltd, (and later, after the 2007 merger, to WNWHLL) and is currently a Principal Regeneration Officer.

6.5 WNWHLL, in common with other ALMOs, provide their services in managing the housing stock to Leeds City Council under a Management Agreement.  It sets out in considerable detail the parties’ responsibilities and powers.  One of the Government’s aims in establishing ALMOs was to take management of council housing out of local authority control.  As their name suggests, ALMOs should therefore manage at arms length from the local authority; it is important to the Government scheme that ALMOs should be independent of the local authority.  ALMOs are inspected by the Audit Commission, and independence is one of the factors they are assessed on.  Guidance given from the office of the Deputy Prime Minister stresses the need for ALMOs to be independent.  Clause 30 of the Management Agreement reflects this aspiration:

‘30.1 Neither Leeds North West Homes nor its personnel shall in any circumstances hold itself or themselves out as being the servant or agent of the Council otherwise then in circumstances expressly permitted by the agreement.’

6.6 Nevertheless, the relationship between Leeds City Council and WNWHLL is in practice extremely close.  Apart from the formal questions of ownership and control, the business of WNWHLL is to manage the Council’s housing stock.  The Management Agreement requires WNWHLL to do this within the confines of a Business Plan, which has to be submitted annually to the Council and agreed by them.  Moreover, the Management Agreement sets out an extensive Performance Management Framework within which WNWHLL has to operate.  WNWHLL receives the vast majority of its finance from the Council; it can only raise funds externally if it can make out a business case to the satisfaction of the Council.  WNWHLL only has one client for whom it provides services - the City Council.

6.7 In providing those services, managing the Council’s housing stock, WNWHLL provide some of the services directly and contracts with other bodies to provide some.  Specifically, it contracts with the City Council’s Property Services Division to provide a range of maintenance services.  The contract with Property Services is set out in a series of separate Service Level Agreements.

6.8 The majority of WNWHLL’s staff were acquired from Leeds City Council under TUPE.  They transferred with all their previous contractual entitlements.  Indeed, it is a term of the Management Agreement that WNWHLL will honour all the Council’s existing collective agreements with the recognised unions, save to the extent that these are subsequently varied by negotiations between WNWHLL and the unions.  For many purposes, ALMO employees are treated on the same basis as employees of Leeds City Council staff.  For example, they receive Team Talker, the information bulletin for Leeds City Council staff; Mr Woodhouse’s personnel records are administered by Leeds City Council Personnel Department so that he receives his pay and his leave card from them; he can use the City Council’s canteens as an employee; he is listed on the Leeds City Council website, which gives details of where to find him, giving his job title as Project Manager and his Department as Leeds ALMO, in the Division: Leeds North West Homes.  Staff at WNWHLL have access to and use the Council’s IT systems.  WNWHLL has contracted with the City Council for the provision of IT and personnel services with the City Council.  In a few areas WNWHLL has gone outside the City Council for services; for example, it has contracted with Peninsula Business Systems Ltd to provide personnel advice and tribunal representation.

6.9 Mr Chapman, the Third Respondent, is an employee of the Housing Department of Leeds City Council within its Property Services Division.  Before the ALMOs were set up in 2003, he and Mr Woodhouse had had contact from time to time.  One of Mr Woodhouse’s duties for WNWHLL involved him from time to time in checking Mr Chapman’s work.  Mr Chapman was employed as a Project Officer/Clerk of Works.  Under the Service Level Agreement between Leeds Property Services Division and WNWHLL, Mr Chapman was engaged on work maintaining properties for WNWHLL.  Mr Woodhouse checked that the work was done by Property Services to the satisfaction of WNWHLL, and that it complied with the terms of the Service Level Agreement.  One of the allegations in this case is that in the course of his work Mr Chapman made racially derogatory comments about Mr Woodhouse, and Mr Woodhouse’s third complaint of discrimination relates to those comments.

6.10 One of the clauses in the Management Agreement relates to personnel:

19.1 Leeds North West Homes shall employ sufficient persons to ensure that the services are provided at all times and in all respects in accordance with the agreement.

19.2 Leeds North West Homes personnel employed in and about the provision of the services shall be properly sufficiently qualified, competent, skilled, honest and experienced, and shall at all times exercise care in the execution of their duties and Leeds North West Homes shall ensure that such persons are sufficiently instructed and supervised with regard to the provisions of the services.”

8.	For Mr Woodhouse, it was submitted to the Employment Judge that the work he did for WN was all work for the council, which was the principal for the purposes of section 7.  That work had to be done by individuals such as Mr Woodhouse, who were employed not by the council itself but by WN, who supplied them under a contract made with the council, namely the management agreement.  Thus Mr Woodhouse was a contract worker.  For the council, it was submitted that the work done by Mr Woodhouse was solely for the benefit of WN and not at all for the council.  

9.	The Employment Judge observed that on first reading, section 7 appeared to apply most naturally to workers supplied to the principal by an employment agency.  I agree with him.  However, it was submitted on behalf of Mr Woodhouse that section 7 should be broadly construed.  After consideration of authority, the judge accepted that submission.  At paragraph 22 of his decision, the judge referred to the submission made on behalf of the council to the effect that the work done by Mr Woodhouse was done solely for WN and not for the council at all.  He then continued: 

“That seems to me to take too narrow an approach to the question of whose benefit ultimately the work was being done for.  WN was created specifically to manage part of Leeds City Council’s housing stock.  That was the only work it did.  Leeds City Council was its only client.  All the work done by the employees of WN, certainly at least of employees of Mr Woodhouse’s level, as opposed possibly to employees at a more senior or Director level, was done for Leeds City Council’s benefit.  WN was obliged under its contract with the council to employ employees to carry out the work, and given the scale and scope of the extensive work involved, it is not surprising if some of the work involved quality control.  That work was, ultimately, as much for the benefit of Leeds City Council as it was for the benefit of WN.”

The judge then concluded that Mr Woodhouse was a contract worker of the council, and that both the council and Mr Chapman were potentially liable to him for racial discrimination.

10.	The council appealed that decision to the EAT.  HHJ McMullen dismissed the appeal for very much the same reasons as had been given by the Employment Judge.  He stressed that the judge’s decision was dependent upon his findings of fact as to the contractual relationship between the parties, and the way in which they conducted their business.  On the particular facts, he said, the judge had been right to say that Mr Woodhouse was a contract worker of the council.

11.	On this appeal, Mr David Jones for the council has submitted that both judges erred as a matter of law.  The work done by Mr Woodhouse was not work done for the council; it was done for his employer, WN.  Nor was Mr Woodhouse supplied by WN under a contract between WN and the council.  Mr Jones accepted that there was authority for the proposition that section 7 should be construed broadly and that the decision under section 7 was fact-sensitive.  But he submitted that the judge had construed the section too broadly; so broad a construction of the section would, he said, lead to unacceptable consequences.

12.	It is convenient at this stage to examine the authorities.  In Harrods Ltd v Remick & Ors [1998] ICR 156 CA, the three appellants alleged race discrimination against Harrods, the department store.  They were all employed as saleswomen by companies who held concessions, or licences, to sell their goods in Harrods.  Harrods had to approve of the licensees’ employees, and the employees had to abide by Harrods’ rules of dress and conduct.  Under the agreements between the licensees and Harrods, the licensees’ goods were sold to Harrods in the instant before they were sold to a member of the public.  Harrods received the marked price from the customer, and then accounted to the licensees for that sum, but keeping a percentage as commission.  The tribunal held that the claimants were contract workers of Harrods within section 7.  The EAT upheld that decision.  On appeal, Sir Richard Scott, the Vice Chancellor (as he then was), with whom Waite and Ward LJJ agreed, said that two questions had to be answered: one, whether the work done by the individual women was work done for Harrods for section 7 purposes; and two, whether the individual women were persons whom the direct employer supplied under a contract.  As to the first question, the Vice Chancellor observed that plainly there was work available to be done at Harrods, but “Was it work for Harrods?”, he asked.  At page 161H of the report, he said: 

“Under Harrods’s contractual arrangements with its licensees the members of staff will be selling goods that at the moment of sale belong to Harrods.  They will be receiving from customers the price for the goods.  The gross sums they receive will be paid over to Harrods, leaving Harrods to account to the licensee after deducting its commission.  All of this work of selling Harrods’s goods and of receiving the purchase money for the goods is work required by Harrods, under its contractual arrangements with the licensees, to be done by staff employed by licensees.  And the contractual arrangements entitle Harrods to impose rules and regulations governing the conduct of staff members in the course of carrying out this work.  Against this background, the work done by the staff members can, in the ordinary use of language, properly be described as work for Harrods.

The Vice Chancellor then considered the submission of Harrods, first, that in order for section 7 to apply, those doing the work should be under the managerial power or control of the principal.  Second, it was submitted that it was not enough that the work should be merely for the benefit of Harrods; the section required an employment test, rather than a test of commercial benefit.  Third, it was said that it was not enough that work should be available at Harrods for employees of the licensee for section 7 to apply; the work had to be made available by Harrods to the individuals concerned.  

13.	The court rejected all those submissions, and the reasons expressed were as follows.  First, they require a reading into section 7(1) of words that are not there; the statutory language “any work for a person (‘the principal’) which is available for doing by individuals” does not in terms limit the work to work in respect of which the principal has managerial powers.  Second, the proposed approach to construction would leave a person in the position of these complainants without a remedy in the event of discrimination against him or her by the principal.  The Vice Chancellor then considered the legislative intention behind the Race Relations Act, and said at page 163E: 

“Accordingly, in approaching the construction of s.7(1) we should, in my judgment, give a construction to the statutory language that is not only consistent with the actual words used but also would achieve the statutory purpose of providing a remedy to victims of discrimination who would otherwise be without one.”

14.	As to the second question, that of supply, the court rejected Harrods’ submission that for section 7 to operate, it was necessary for the applicant to show that the primary obligation under the contract between the principal and the employer was the supply of labour.  The Vice Chancellor rejected that, saying: 

“If, under a contract, there is a contractual obligation to supply individuals to work that can properly be described as ‘work for’ the principal, the section, in my judgment, applies.  If the supply of the worker or workers is pursuant to an obligation under a contract, that, in my judgment, will do.”

Those observations were an essential part of the reasoning of the court in dismissing the appeal in Harrods v Remick; they are, therefore, binding on this court.  In any event, I respectfully agree with them.

15.	In the EAT in the present case, HHJ McMullen also considered CJ O’Shea Construction Ltd v Bassi [1998] ICR 1130, EAT.  In that case, the applicant, Mr Bassi, worked as a delivery driver under a contract for Pioneer Ltd, who supplied ready-mixed concrete to the construction industry.  The contract required Mr Bassi personally to execute work for Pioneer Ltd.  Pioneer Ltd required Mr Bassi to deliver concrete to a site controlled by O’Shea.  The contract between Pioneer Ltd and O’Shea provided that deliveries should be made in accordance with O’Shea’s instructions.  Mr Bassi complained to a tribunal that when delivering to O’Shea’s site, the banksman whose instructions he had to follow had subjected him to racial discrimination.  On a preliminary issue, the tribunal held that Mr Bassi was a contract worker vis-à-vis O’Shea as principal within section 7 of the RRA.  The EAT expressly followed Harrods v Remick, and dismissed O’Shea’s appeal, observing that the question whether Mr Bassi did any work for O’Shea was a matter of fact and degree, depending on the surrounding circumstances, and holding that the tribunal had not misdirected itself in law. 

16.	The correctness of that decision on its particular facts was doubted by the Northern Ireland Court of Appeal in Jones v Friends Provident Life Office [2004] IRLR 783.  This case was considered by both Employment Judge Forrest and HHJ McMullen.  The facts were rather complex, but the detail does not matter for present purposes.  In brief, Mrs Jones was employed by her husband in his estate agency business.  That business became an appointed representative of Friends Provident for the purpose of selling their products.  Mrs Jones, as an employee of the estate agency business, was appointed as a company representative of Friends Provident.  She could advise and sell investment products to clients of her husband’s business.  When that arrangement was terminated by Friends Provident, Mrs Jones claimed that, in withdrawing her status as a company representative, Friends Provident had discriminated against her on grounds of sex.  She commenced proceedings alleging discrimination, but Friends Provident argued that there was no jurisdiction, as she was not their employee.  She maintained that she was their contract worker, in reliance on Article 12 of the Sex Discrimination (Northern Ireland) Order 1976.  Article 12 of that order is in comparable terms to section 7 of the Race Relations Act.  The tribunal at first instance held that Mrs Jones was a contract worker of Friends Provident.

17.	In the Court of Appeal of Northern Ireland, it was argued that it was not enough for the complainant to show that the work she had been employed to do had inured for the benefit of Friends Provident.  Lord Carswell, the Chief Justice, accepted that that was a doubtful proposition, and observed that in the Harrods case there had been indications beyond that fact, and the matter had been left as one of fact and degree.  No doubt he had in mind the specific findings of fact mentioned by the Vice Chancellor.  However, he considered that on the facts found the tribunal had been entitled to conclude that Mrs Jones’s work had been done for Friends Provident.  As to the second question, whether Mr Jones’s business had supplied Mrs Jones pursuant to a contract, Lord Carswell LCJ said this: 

“13. Article 12 was designed to prevent an employer from escaping his responsibilities under anti-discrimination legislation by bringing in workers on sub-contract (see Allonby v Accrington and Rossendale College [2001] IRLR 364 at paragraph 4, per Sedley LJ).  The respondent would be covered by Article 12 if its operation is not confined to the case of workers whom the employer has specifically contracted to supply to the principal, like agency nurses or temporary typists.  In my opinion Article 12 should receive a broad construction which has the effect of providing the statutory protection to a wider range of workers.  

14. The limits to which it should be allowed to extend require careful definition.  Counsel for the respondent, in arguing for a broad construction, relied upon the decision of the Employment Appeal Tribunal in CJ O'Shea Construction Ltd v Bassi [1998] ICR 1130.  In that case the complainant Mr Bassi was a carrier who contracted with Pioneer Concrete (UK) Ltd to deliver Pioneer's ready-mixed concrete to building sites in his vehicle.  In pursuance of this contract he made deliveries to the respondent's site, where, he claimed, he suffered racial abuse and discrimination.  The contract between Pioneer and O'Shea was comprised in the former's standard conditions of sale, which were not set out in the report, but apparently did not refer in specific terms to the identity of the personnel making the deliveries or the means by which delivery was to be effected.  The EAT rejected the suggestion that the supply of the individual worker should be the primary or sole purpose of the contract under which he or she is supplied, following on this point the conclusion reached by the Court of Appeal in Harrods v Remick at page 163.  It went on to hold at page 1138 that because Pioneer had contracted to deliver concrete by means of a vehicle, complete with a driver able to unload and deliver it, the tribunal was entitled to hold that Pioneer had ‘supplied’ Mr Bassi under a contract.

…

16. I have some reservations about the correctness of the decision in CJ O'Shea Construction Ltd v Bassi, which seems to me to open the way to a wide variety of possible claims.  If it is right, a delivery driver could in very many instances claim under Article 12 against the consignee of the goods delivered by him or an employee of a sub-contractor might claim likewise against the main contractor.  I do not consider that the statutory provision can have been intended to extend so far, and am of the view that it must be restricted in some fashion if the respondent's contention is accepted. 

17. The purpose of Article 12 is to ensure that persons who are employed to perform work for someone other than their nominal employers receive the protection of the legislation forbidding discrimination by employers.  It is implicit in the philosophy underlying the provision that the principal be in a position to discriminate against the contract worker.  The principal must therefore be in a position to influence or control the conditions under which the employee works.  It is also inherent in the concept of supplying workers under a contract that it is contemplated by the employer and the principal that the former will provide the services of employees in the course of performance of the contract.  It is in my view necessary for both these conditions to be fulfilled to bring a case within Article 12.”

18.	Lord Carswell went on to hold that the tribunal had not misdirected itself.  Nicholson and Kerr LJJ agreed.  Nicholson LJ said this at paragraph 21: 

“I respectfully agree that Article 12 should receive a broad construction which has the effect of providing a statutory protection to a wider range of workers.  For this reason, I am reluctant to define the limits to which it should be allowed to extend.  It seems to me that its extent should not be defined by constructing limits which turn out to be unjustified.  I believe that the cases covered by the article should be developed incrementally and that they will be determined by the facts of each, which cannot be anticipated.”

19.	Nicholson LJ then reviewed the effect of the decision in Harrods.  As to Bassi, he did not share Lord Carswell LCJ’s reservations about that decision.  He thought it was justified on the facts, as the banksman was in the position to make the delivery driver’s working conditions intolerable.  He then said that if, as a result of giving the section a broad construction, more people were able to complain of discrimination than had earlier been thought, he would bear that with equanimity.  He added at paragraph 28: 

“It does not follow that every delivery driver or every employee of a sub-contractor has a claim for discrimination against the main contractor.  But I am not impressed by the ‘floodgates’ argument advanced in Bassi’s case and dismissed by the tribunal.  If the principal is not in a position to discriminate against an ‘employee’ of the person who supplies that individual under a contract with the principal, any claim brought against the principal must, inevitably, fail.  And it seems to me that an industrial tribunal should be able to deal with claims of discrimination without limitation on the construction of the Article, and thus ensure that a genuine case of discrimination can be redressed.”

Although the case of Jones is not binding on this court, I find the observations of Lord Carswell LCJ and Nicholson LJ helpful, and propose to follow them.

20.	Against that background, I will consider the present case.  Mr Jones submits that Mr Woodhouse was not working for the council at all.  He worked only for WN.  The authorities showed, he submitted, that mere benefit to the council was not enough to bring section 7 into application.  He submitted that there had to be evidence that the principal could control or influence the work of the applicant.  In the present case, the council could not control or influence what Mr Woodhouse did.  If it could have done, that would have undermined the whole purpose of having an independent body to manage the council’s properties.

21.	This reference to control or influence comes from dicta in the case of Jones, to which I have referred.  In that case, Friends Provident plainly could influence Mrs Jones’s work, because they could withdraw her status as a company representative.  Also in the Harrods case, Harrods could require the women to obey their standards of dress and conduct.  Mr Jones submitted that there was no comparable finding in the present case.

22.	That is so, but it does not in my view undermine the judge’s reasoning.  Each case is fact-sensitive; merely because the facts are not similar to a previous case does not mean that they cannot fall within section 7.  The authorities suggest that where the principal and the employer of the applicant are in the relationship of contractor and subcontractor, the mere fact that the applicant does work under the subcontract from which the principal will derive some benefit is not enough to bring the applicant within section 7.  It may well be that, if it can be shown that the principal can exercise an element of influence or control, that will be enough to bring the case within section 7. But that is not to say that influence or control must be demonstrated in all cases.  The judge in the present case considered that, due to the extreme closeness of the relationship between the contracting parties, it could properly be said that Mr Woodhouse’s work was being done for the council, regardless of the exercise of control or influence.  In my view, control and influence are not necessary elements, and it matters not that they have not been demonstrated in the present case.

23.	Mr Jones also submitted that the circumstances in which Mr Woodhouse came into contact with Mr Chapman were pursuant to the service agreement between WN and the PSD, and not under the management agreement between the council and WN.  The argument is that, under the service subcontract, it was the PSD and Mr Chapman who were working for WN, and not the other way round.  Moreover, as he pointed out, WN could have subcontracted the maintenance work to another organisation.  

24.	Although it was this argument which persuaded Rimer LJ to grant permission to appeal, this argument was not pursued with any vigour today.  In my view, that was sensible.  True it is that WN could have contracted for maintenance services with another completely separate company, but the fact is that it did not.  It subcontracted those services to the PSD, and the PSD is part of the council.  There are two contractual agreements linking WN and the council, the management agreement and the service agreement.  It does not appear to me that it was ever suggested to the judge that the only contract which caused these men to come into contact (and the only one that was relevant for him to consider) was the service agreement, and that the management agreement was not therefore relevant. 

25.	Had that been suggested, there would have to have been evidence as to the circumstances in which the two men came into contact. The only reference we have to that contact is that it is said that Mr Woodhouse was responsible for quality control of the PSD’s work.  But as I read the ET1, Mr Woodhouse was not saying that those were the only circumstances in which they came across each other.  He was saying that Mr Chapman had denigrated him at meetings of a committee dealing with regeneration work.  If that is right, and there is no finding of fact to that effect, it would seem to me that it would be quite artificial to say that they met only because of the existence of the service agreement.
  
26.	The judge appears to have assumed that both the management agreement and the service agreement were relevant to the case; and in the absence of evidence and argument to the contrary, I think he was entitled to do so.  In my judgment, the reasoning of the Employment Judge in his paragraph 22, which I have quoted above, is beyond criticism.  He pointed out that WN had only one customer; namely the council.  WN existed only in order to provide management services to the council; in fact, as is common ground, WN is a wholly-owned subsidiary of the council.  

27.	It seems to me that, in those circumstances, it can properly be said that everything done by WN’s servants, including Mr Woodhouse, was being done not only for WN but also for the council.  In my judgment, the first question as identified in the Harrods case is plainly satisfied.

28.	As for the second question, that of supply, the judge pointed out that, under the management agreement, WN was obliged to employ employees to carry out the work.  WN could not otherwise fulfil its contractual obligations.  In a real sense, WN supplied workers pursuant to its contract with the council.  In my view, that finding is not undermined by any suggestion -- which, as I say, I do not think was fully argued before the judge -- that looked at in another way, one might say that Mr Chapman was being supplied to WN.  

29.	For those reasons, I would dismiss this appeal.   However, I wish to add a note of caution about the whole idea of determining the application of section 7 as a preliminary issue.  I can see the attractions of doing so, in terms of saving time and money.  However, unless the case is very straightforward, it will be necessary for the tribunal to make extensive findings of fact.  That was necessary in this case.  
30.	Two things concern me.  First, the scope of the evidence potentially relevant to the section 7 issue may not be immediately obvious.  The tribunal has to examine not only the terms of the contract between the immediate employer and the principal, but also how they and their employees operated the contract in practice.  For example, I have in mind in the present case the facts alleged in the ET1 to which I referred earlier.  Mr Woodhouse alleged that when he completed a grievance form, it appeared to be a joint form used by both WN and the council.  If true, and we do not know whether it is, that might be relevant to the section 7 issue.  Also, Mr Woodhouse said that he received a letter from an employee of the council, who appeared to have been investigating his grievance.  If true, that might or might not have been relevant to the section 7 issue. In short, it seems to me that, in a case that is not clear and simple, it will be preferable for the section 7 issue not to be hived off, but to be heard as part of the entire case.  

31.	My second concern is that the issue under section 7 is largely one of fact, which should be determined by a full tribunal rather than by a judge alone.  

32.	However, all that said, I consider that on the basis of the materials and the arguments advanced, the Employment Judge in this case was fully entitled to conclude that Mr Woodhouse was a contract worker of the council, and for that reason I would dismiss the appeal.

Mrs Justice Baron: 

33.	I agree.

Lord Justice Thorpe:

34.	I also agree.  The appeal will be dismissed with costs to be assessed in default of agreement.

Order:  Appeal dismissed with costs.