Spc00731

National Insurance Contributions; secondary contributor; mariner; whether member of crew of ship or vessel; foreign employer; commercial purpose of arrangements; host employer; agency rules; offshore installations; Floating Production Storage offload Facility (FPSO); whether ship or vessel; whether on voyage; Social Security Contributions and Benefits Act 1992 ; Social Security (Categorisation of Earners ) Regulations 1978; Social Security (Contributions) Regulations 2001

THE SPECIAL COMMISSIONERS

	OLEOCHEM (SCOTLAND) LTD	Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	                                                                                                              
             Respondents

		

			Special Commissioner:  J GORDON REID QC, F.C.I.Arb

Sitting in public in Edinburgh on 27th, 28th and 29th October 2008 

for the Appellant 		Rupert Baldry, barrister (of the English Bar)

for the Respondents 		Roderick N Thomson Q.C.

© CROWN COPYRIGHT 2008

DECISION

Introduction

1.	These are appeals against forty two decisions of the Respondents (“HMRC”) that the Appellants are liable to pay secondary Class 1 contributions in respect of the earnings of various individuals working off shore in the oil industry as process chemists. 

2.	All appeals raised or at least appeared to raise the same issues and were heard together, as one combined appeal, at Edinburgh on 27th, 28th and 29th October 2008.  Rupert Baldry, barrister, of the English Bar, appeared on behalf of the Appellants on the instructions of KPMG, Aberdeen.  He led the evidence of Christopher Marsden, who, during the period in question, was the director and sole shareholder of the Appellants, Robin Smith, an accountant and member of the Society of Trust and Estate Practitioners; he is or at least was a director of Oleochem International Services Ltd (“International”), a wholly owned subsidiary of the Appellants and J Malcolm Stephen, an offshore process chemist (one of the 42- see file D/39).  Roderick N, Thomson,  then advocate (now Q.C.) appeared on behalf of HMRC on the instructions of Eric Brown of their Solicitors’ Office, Edinburgh.  He led no evidence.

3.	Parties produced joint bundles of productions and a statement of Agreed Facts (reproduced below).  Signed written statements by the witnesses were produced in advance of the Hearing and were treated as part of their evidence.

The Decisions appealed against

4.	Each Notice of Decision issued by HMRC stated that the individual in question was an employed earner in respect of his engagement with the Appellants during a specified period; that the Appellants are liable to pay primary and secondary Class 1 contributions in respect of the earnings from those engagements.  The total of the sums said to be in dispute is in the order of £330,000.

The Grounds of Appeal

5.	The grounds of appeal contained in the letters sent to HMRC in response to the Notices of Decision are that:-

6.	(i) the individual concerned was not an employed earner in respect of engagements with the Appellants, 

7.	(ii) no payments of national insurance contributions were made by the Appellants; 

8.	(iii) the individuals concerned did not provide their personal services solely to the Appellants but to others at the same time.  Therefore, as there was potentially more than one “host employer” as defined by paragraph 9 of Schedule 3 to the Social Security (Categorisation of Earners) Regulations 1978, this appeal will fail as there is no mechanism to apportion the personal services, 

9.	(iv) the individuals concerned were employed by International, a company registered in Jersey with no place of business in the UK.  The employment with International will be treated by regulation 115 of the Social Security (Contributions) Regulations 2001 as that of a mariner.  Even if the Appellants are viewed as having the personal service of the individual made available to them, the Appellants will not be treated as a host employer by virtue of paragraph 9 of Schedule 3 of the 1978 Regulations, 

10.	(v) the individuals were not paid by the Appellants and therefore even if the Appellants were deemed to be a host employer then the Appellants would still not be liable for national insurance contributions as no general earnings were paid by the Appellants as required by paragraph 10(2) of Schedule 4 of the Social Security (Contribution) Regulations 2001, and 

11.	(vi) no amounts of national insurance are due and payable by the Appellants.

Statutory Background 

12.	Section 1(1) of the Social Security Contributions and Benefits Act 1992 provides that the funds required for paying benefits out of the National Insurance Fund are to be provided by means of contribution payable to HMRC by earners, employers and others.  Contributions are divided into various classes.  These include primary Class 1 contributions from employed earners and secondary Class 1 contributions from employers and other persons paying earnings (section 1(2)(a)(ii)).  There is no liability to pay Class 1 contributions unless the prescribed conditions as to residence or presence in Great Britain are fulfilled (section 1(6)(a)).  The prescribed conditions are to be found in Regulation 145 of the Social Security (Contributions) Regulations 2001 SI 2001/1004 (the 2001 Regulations).  These are the main administrative regulations and have been in force since 6/4/01.  It is a matter of agreement between parties that their statutory predecessor, the Social Security (Contributions) Regulations 1979, is not materially different and does not require separate consideration.  

13.	Liability for payment of secondary Class 1 contributions is imposed on the secondary contributor (1992 Act section 6(1)&(4)(b)).  Section 7 of the 1992 Act defines secondary contributor.  In the case of an earner employed under a contract of service, the secondary contributor is his employer (Section 7(1)(a)).  Section 7(2) enables regulations to be made which provide that a prescribed person is to be treated as the secondary contributor.  These regulations are the Social Security (Categorisation of Earners) Regulations 1978, SI 1978 /1689 as amended (the 1978 Regulations).  The effect of one particular amendment is the subject of dispute between the parties.  Regulation 1 of the 2001 Regulations also contains a definition of secondary contributor.  However, the definition is described by reference to liability to pay the secondary Class 1 contribution which is somewhat circular.

14.	By section 117 of the 1992 Act regulations may be made which modify inter alia Part 1 of the 1992 Act (which includes the sections mentioned above) in its application to persons who are or have been or are to be employed on board any ship, vessel hovercraft or aircraft; in broad terms mariners and airmen. The relevant regulations are contained in Case C (Regulations 115 to 125) of the 2001 Regulations. 

15.	Regulation 145 of the 2001 Regulations sets out what may be described as a general condition of liability, namely that the employer is liable for secondary Class 1 contributions where he, the employer, is resident or present in Great Britain or has a place of business there when such contributions become payable (Regulation 145(1)(b)).

16.	Part 9 of the 2001 Regulations identifies various classes of earners divided into Cases. Case C, comprising Regulations 115 to 125, relates to Mariners.  Mariner is defined in Regulation 115. Mariner means:-

“a person who is or has been in employment under a contract of service either as a master or member of the crew of any ship or vessel, or in any other capacity on board any ship or vessel where-
(a) the employment in that other capacity is for the purposes of that ship or vessel or her crew or any passengers or cargo or mails carried by the ship or vessel; and
(b) the contract is entered into in the United Kingdom with a view to its performance (in whole or in part) while the ship or vessel is on her voyage.” 

17.	Regulation 117(1) provides inter alia that 

“As respects any employment of a person as a mariner...............

(c) it shall be a condition of liability to pay a secondary contribution...that the secondary contributor is resident or has a place of business in Great Britain.”

There are further provisions to deal with the situation where the foreign employer of the mariner does not pay his earnings but some third party resident or having a place of business in Great Britain does pay them.  In that event, that third party is treated as the secondary contributor whether or not he makes the payment as agent for the employer (Regulation 122 of the 2001 Regulations).  Regulation 122 is not however relevant to the present proceedings.

18.	Regulation 124(1) of the 2001 Regulations provides inter alia that:-

“Part 1 of the (1992) Act and so much of Part VI of the Act as relates to contributions and the regulations made under those provisions shall, insofar as they are not inconsistent with the provisions of this Case, apply to mariners with the modification set out in paragraph (2)”

19.	Thus, it can be seen that where there are inconsistencies between what may be described as the general regulations relating to contributions (which includes liability for secondary Class 1 contributions) and the particular regulations relating to mariners, those relating to mariners must take precedence. 

20.	In general, the 1978 Regulations provided, inter alia that earners in various types of work are to be treated as falling within the category of an employed earner notwithstanding that the employment is not under a contract of service; examples of the diverse range are office cleaners, ministers of religion, educational examiners or invigilators, and an election returning officer.  Likewise, various persons are treated as the secondary Class 1 contributor in relation to certain employed earners.  These deeming provisions for the purposes of liability to pay secondary Class 1 contributions are set forth in Schedule 3 to the 1978 Regulations (see what is now Regulation 5(1) of the 1978 Regulations).  Among other matters, these Regulations provide that earners supplied through agencies are treated as employed earners (Regulation 2(1) and Schedule 1, Part 1, column A, paragraph 2) and the agency is treated as the secondary contributor (schedule 3 column B paragraph 2(b)).

21.	Regulation 5(2) of the 1978 Regulations provides as follows:-

“Paragraph 9 of Schedule 3 applies to mariners notwithstanding anything in regulations 122 and 124(1) of the Social Security (Contributions) Regulations 2001”

22.	Column A of Schedule 3 to the 1978 Regulations describes the employment, and column B identifies the person who is deemed to be the secondary Class 1 contributor.  Paragraph 9 of column A in its amended form provides as follows (the part of the amendment which was the subject debate is underlined):-

“9 Employment by a foreign employer where-

(a) in pursuance of that employment the personal service of the person employed is made available to a host employer; and
(b) the personal service is rendered for the purposes of the business of that host employer; and 
(c) that personal service for the host employer begins on or after 6th April 1994

Where the employment is a mariner, this paragraph only applies where the duties of the employment are performed wholly or mainly in category A,B,C or D waters”

23.	Paragraph 9 of column B of Schedule 3 to the 1978 Regulations (which column identifies the persons treated as secondary Class 1 contributors is in the following terms:-

“9 The host employer to whom the personal service of the person employed is made available.”

24.	Section 120 of the 1992 Act provides for regulations to be made in relation to prescribed employment in connection with continental shelf operations.  This provision concerns earners and does not address secondary contributors as such.  The relevant regulation is Regulation 114 of the 2001 Regulations; the employment prescribed is essentially off shore oil industry related employment.  The Territorial waters extend to 12 nautical miles by virtue of section 1 of the Territorial Sea Act 1987.  The continental shelf extends to 200 nautical miles.

25.	Employed earner includes a person who is gainfully employed in Great Britain ...under a contract of service (1992 Act section 2(1)(a)).  There are other categories.  Section 2(2) enables regulations to be made which treat a person in employment of a prescribed description as falling within one of the categories of earners defined in section 2(1).  By virtue of section 172 of the 1992 Act references therein to Great Britain include the territorial waters of the United Kingdom adjacent to Great Britain.  

Facts

26.	The following is the Agreed Statement of Facts which are not in dispute:-

1)	“Oleochem (Scotland) Limited (OSL) is a company incorporated in Scotland and tax resident in the UK whose registered office is 300c Broomhill Road, Aberdeen, AB10 7NF.  The Director of OSL is Chris Marsden who is a UK national and is currently resident in Thailand.  Oleochem International Services Limited (OISL) is a wholly owned subsidiary of OSL and is incorporated in Jersey with its central management and control exercised in Guernsey.  Robin Smith is a director and is based in the Channel Islands.

2)	OISL is not and never has been tax resident in the UK and OSL is and always has been tax resident in the UK.

3)	OSL’s business involves entering into contracts with clients which require the services of chemists or laboratory analysis.  OSL’s typical client is operating in oil and gas industry in the UK Continental Shelf.  OSL enters into agreements with the clients to supply services.  OISL supplies the chemists from its pool of chemists under a contract to supply personnel from OISL to OSL.  OISL pays their wages from its Channel Islands’ bank account.  OISL has a contract with OSL whereby OSL supplies services which include sourcing UK individuals in the UK and other HR functions.  

4)	OSL supplies services to its clients which includes the provision of production chemists and laboratory services.  The chemists can be supplied on a long-term, short-term, rotational or ad-hoc basis to carry out laboratory testing and analyses to international standards, to offer effective control of chemicals, and to support production operations.  As well as ongoing responsibilities like the monitoring of chemical injection rates, bulk chemical stock control and production operation duties, the chemists can also deploy their practical expertise into other areas.  This includes auditing laboratory procedures and documentation to meet health, safety and environmental standards, covering all areas of laboratory sampling, testing and calibration.

5)	Information relating to OISL was provided to the then Contributions Agency on 1 May 1997 at the time the arrangements were being set up.  The Contributions Agency provided confirmation by letter dated 21 August 1997 on the basis of the information provided OISL was not liable to pay any employers secondary class 1 national insurance contributions.  OISL had not, and never has had, a place of business in the UK.  This being the case, since the inception of arrangements, OISL has not accounted for any secondary class 1 national insurance contributions.

6)	OISL voluntarily deducted and made payment to HMRC of the PAYE tax deductions and the class 1 primary national insurance contributions which would have been due had OISL had a UK place of business.  In respect of the national insurance, this is allowed for under Regulation 145(1)(b) Social Security (Contributions) Regulations 2001 where a foreign employer (OISL) can choose to voluntarily deduct and pay over national insurance.”

27.	I find the following additional facts admitted or proved, which should be regarded, where appropriate as amplifying or explaining more fully the above Agreed Statement of Facts not in dispute (I refer to OSL as the Appellants and OISL as International):-

General

7)	The Appellants were incorporated in 1992 initially to provide laboratory consultancy services to the UK off shore industry and subsequently to provide offshore laboratory services to the oil and gas industry world wide. Mr Marsden has extensive experience of providing such services.  He personally commissioned the laboratory on the first North Sea FPSO (Floating, Production, Storage and Offloading) facility, the Gryphon in 1993.

8)	International was incorporated in 1997 to provide offshore laboratory services to the Appellants on floating installations in the North Sea.  Such an arrangement was originally proposed to the Appellants by a client.  Such arrangements whereby the personnel are employed by companies with no place of business in the United Kingdom have become common in the offshore oil and gas industry particularly in the North Sea.

Corporate Structures

9)	International was originally a wholly owned subsidiary of the Appellants.  The position changed in 2007 or early 2008.  It is unnecessary to make findings about these changes as the periods of employment of the individuals for which HMRC have decided that the Appellants are liable to pay secondary Class 1 contributions, all fall between 6th April 2000 and 5th April 2005.  All findings relate to that period.

10)	International was set up after Mr Marsden had taken legal, accountancy and tax advice from various professionals, including a former Inspector of Taxes, Coopers Lybrand and their Guernsay subsidiary, Abacus, and a firm of Aberdeen solicitors.  A client of the Appellants had insisted that such an arrangement, which was, or was becoming, popular in the offshore oil industry, be put in place before certain contracts were awarded to the Appellants.  The client wished to share in the perceived benefit of avoiding liability for secondary class 1 contributions.  The Appellants did so to maintain or at least obtain a competitive edge in this sector of the offshore oil industry.

11)	The former inspector of taxes wrote to the Contributions Agency in about May 1997 intimating that International was to be set up in Jersey where it would be controlled and managed.  The letter stated that its purpose would be to seek out and obtain contracts for the provision of laboratory services on offshore oil areas world wide; all salary payments and recruitment and dismissal of staff were to be dealt with in Jersey.  Confirmation was sought that, as International would not be resident in the United Kingdom nor have a place of business there, it would not be liable to account for secondary Class 1 contributions.  The Contributions Agency replied by letter dated 21/8/07 stating that there would be no liability for the employers’ share of National Insurance contributions because International would not have a place of business in the United Kingdom.

12)	Abacus arranged for the incorporation of International.  Mr Marsden was not a director of International.  He did not exercise any control over its management or operations.

13)	The process chemists are interviewed by Mr Marsden, who made recommendations to International.  The individual’s contract of employment is between the individual and International.  

14)	The formal arrangements which, at the relevant time, are set forth in several written contracts (see below).

Oleochem International Services Limited (“International”)

15)	During the relevant period the directors of International were Robin Smith and a Mr D Rowlandson.  They were in fact employees of the Nerine Group, a trust administration company based in the Channel Islands.  Nerine provided various administrative services and facilities for businesses based in the Channel Islands.  Nerine has about eighty five employees.  Robin Smith is Group Finance Director.  His background is accountancy, which he studied at university and subsequently worked for Deloitte Haskins & Sells in London.  He is a Chartered Certified Accountant.  Nerine took over the administration of International on 1 October 1998.  Mr Smith was appointed a director of International on 13th October 1998.  Since 2001, he has become more closely involved in the day to day management of its operations from Guernsey.  He dealt with correspondence, new staff, and retirement issues.  Mr Smith had no particular experience in the offshore oil industry.  None of the Nerine staff had any formal training in relation to recruitment of staff.

16)	International maintains the personal records of all its chemist employees.  In effect, these are maintained and managed by Nerine.  International does not have any administrative staff as such.  Several employees of Nerine devote all or most of their time to International.  Final decisions as to employment of particular chemists were formally taken by Nerine, through Mr Smith and his staff on behalf of International.  Advertisements for process chemists are placed in the Aberdeen press from time to time by International.  The Appellants, through Mr Marsden, carry out the interviews of prospective employees and submitted recommendations to International which were, on most occasions, accepted.  Contracts of employment were sent out by International for signature to the process chemists engaged who usually reside in the United Kingdom.  All of the forty two chemists are UK taxpayers.  Employers Liability Insurance was originally taken out by the Appellants but more recently (the evidence is not specific) International have done so instead. International did not supply its chemist employees with any form of health and safety equipment other than overalls.  (There was a difference in the evidence on this point between Mr Smith who said no overalls were provided and Mr Marsden who said they were; it seemed to me that Mr Marsden was more likely to be correct on this practical matter).

17)	Such services as the Appellants carried out for International, such as interviewing prospective chemist employees, seemed to be carried out without remuneration.

18)	Nerine carried out or arranged for the carrying out of various administrative matters on behalf of International, for which they were paid a fixed fee plus disbursements.  They were responsible for administering the payroll for International’s employees, essentially the various chemists referred to above.  However, Nerine sub-contracted this task to a small Aberdeen business, A&B Business Consultants.  Class 1 primary national insurance contributions are deducted from International’s employees’ earnings and paid over to HMRC on a voluntary basis.  Nerine were also paid an additional fee for preparation of accounts. 

19)	The principal, if not the only purpose of setting up International, was to avoid liability for secondary Class 2 national contributions and thus to secure a competitive edge in the relevant sector of the offshore oil industry.  But for this benefit, it is unlikely that International would have been set up.  Nerine and its employees had no experience of or skill in operating in the offshore oil industry.  Nerine did not have competent staff who could appropriately interview a process chemist and assess his suitability to work offshore.  Accounting measures were taken from time to time to ensure that International traded at neither a significant profit nor a significant loss.  This was in accordance with advice given when International was being set up.

Floating Production Storage Offload Facility (FPS0)

20)	As is well known, oil installations were originally fixed by legs to the seabed.  At the end of the oilfield’s life the installation had to be removed by barge or dropped to the seabed.  Such decommissioning costs were expensive.  In 1993 the first North Sea installation, the “Gryphon” was placed on the Gryphon field.  It was essentially a converted oil tanker with oil, gas and water processing facilities on topside.  Most FPSOs have a turret, which can be placed in the forward, central or aft region.  This allows movement around the fixed risers which come from the seabed.  These risers include the production pipeline, water injection, chemical injection, the gas lift line and a test line.  The FPSO essentially swivels around its own turret.  It sails to its destination under its own power and maintained its position with powered propellers, anchors and GPS (Global Positioning System) navigational aids.   It is connected to the wells on the seabed by flexible risers.  When the oilfield dries up, the FPSO moves to the next one, or is returned to port where it is refitted, and redeployed at another oilfield; or depending on circumstances, it may be scrapped.  Sometimes an FPSO such as the Gryphon can remain at the same station for many years.  

21)	FPSOs as shown in the photographs produced, and as described in evidence, have the appearance of ships or vessels; they float and are navigated and manoeuvred in much the same way as vessels, and propel themselves in water in much the same way as ships or vessels.  Some of them began life as oil tankers and have been converted to FPSOs.  They have an accommodation module at one end with cabins for the crew, galleys and mess rooms.  The boiler, cargo off load pumps and bilges are below the accommodation module.  They are described in literature produced as vessels (File A section V1)

22)	The incoming oil is processed, stored in the FPSO’s tanks (which in its former life as an oil tanker, would have been where its cargo of oil would have been stored), and eventually transferred to a third party oil tanker.  The gas is used as fuel for various generators on the facility.  Diesel is available as back-up.  Water is processed i.e. cleaned up and discharged back into the sea

Chemist’s Duties

23)	When the chemists entered their contracts of employment with International they did so with a view to performing their duties offshore whether on a fixed offshore installation or on a FPSO while the FPSO was at sea usually in the area of the continental shelf.  They normally arrive and depart by helicopter.  Their period of duty is usually about three weeks but the chemist is not allowed to depart until his replacement has arrived.  The purpose of their presence is broadly to observe, monitor and facilitate the processing of the crude oil and its transfer to a receiving oil tanker taking delivery of it usually on behalf of a third party purchaser.  

24)	The purpose of the FPSO is to facilitate the exploitation of the relevant oilfield, to receive, process, store and transfer to the receiving oil tanker the oil recovered from the field below the seabed.  The principal function of the forty two process chemists with whose activities these appeals are concerned, was to monitor, on behalf of oilfield owner or operator, the various parameters with which the oil and gas being recovered from below the seabed had to comply, so that all legislative and contractual requirements and specifications were met.  This could require the collection and analysis of oil, produced gas, produced water, lubrication oils, hydraulic oils, injection oil, fuel oil, fuel gas and boiler analysis.  These tests are necessary for the continued production of the facility.  Essentially, they involve either metering or sampling.  Some analytical tests are FPSO specific and chemists have to be specially trained to carry them out.  Chemists are also responsible for ensuring that overboard discharges meet the relevant statutory requirements. They also monitor the metering of the export crude oil as it is transferred or loaded into the receiving oil tanker.  On some installations chemists train other crew members to carry out simple analytical tests to enable basic process information to be maintained while the chemist is off shift.

25)	Chemicals are required in the processing of crude oil.  They are injected into the subsea infrastructure and combine with the incoming oil.  This facilitates the flow of production and the separation of oil, gas and water.  The chemist is responsible for maintaining the correct injection rates, and maintaining the stock levels of the required chemicals.  Maintaining the correct injection rates involves the use of complex laboratory equipment on the FPSO.  Some chemicals are hazardous and access to the laboratory is restricted.  Various tests are carried out either once or twice per twelve hour shift.

26)	Once the crude oil has passed through the process system, it is stored within the FPSO’s storage tanks.  It remains there until offloaded or discharged on to a third party oil tanker via an off take hose.  The crude oil being so discharged has to be sampled and analysed to ensure sales parameters are met.  The chemist carries out this process on behalf of the seller.  The Oil Tanker owner has the oil, being discharged, sampled and analysed at the same time.  The discharge process and its sampling and analysis takes up to about sixteen hours.  

27)	The chemist is usually responsible for the sampling and analysis of the FPSO’s boiler system.  The boiler system is critical to the processing and transfer of the crude oil.  Steam generated by the boiler is used to warm the crude oil in the storage tanks; this facilitates water separation and maintains the crude oil at the correct viscosity when discharged.  The cargo transfer pumps are steam driven.

28)	The chemist is also responsible for testing the waste water which is discharged into the sea.  It has to have a sufficiently low oil content to meet various environmental legislative requirements.  If these requirements are not met, operations will eventually come to a halt.  Such water is stored in the FPSO’s slop tanks, where there is limited capacity, until the problem is resolved.  The slop tanks themselves have to be sampled regularly by the chemist using marine dipping equipment. Biocide chemicals (for bacterial control), which are highly toxic, have to be added from time to time.

29)	The chemist also monitors the potable water on a daily basis.  The chemist is also involved in various emergency duties and drills such as muster checks or being part of the lifeboat crew, being a fire-fighter or part of the first aid team.

30)	Sometimes such personnel act as, in effect, Production Operators and carry out Control Room duties.

31)	These chemists are part of the Core crew of the facility and frequently attend daily or weekly meetings of the Core crew and senior installation management.  The Chemist is directly responsible to the Production Supervisor of the installation, who in turn is responsible to the Offshore Installation Manager (the OIM).  The role of the chemist is an integral part of the overall operation of the facility.  Their contribution is needed for the constant operation and integrity of the facility and the maintenance of a safe working environment.  These chemists do not perform any professional service for the Appellants.  They perform their services on board the FPSOs for the operator of the FPSO whoever that may be from time to time.

Contractual Arrangements

32)	On or about 1/10/98, the Appellants and International entered into a Staff Supply Agreement (File B1/13).  In summary International provided the Appellants with the services of their personnel (described as the Crew).  By Clause 5.4, the Appellants  may give notice to International requiring the latter, in effect, to dismiss a chemist.  There are also provisions about confidentiality and intellectual property, health and safety insurance, access to records and termination of the Agreement.

33)	By an Addendum to that Agreement dated 3/2/03, International authorised the Appellants to place process chemists at particular locations without prior specific authority from International.

34)	On 1/10/98, International entered into a Management Agreement with Nerine Trust Company Limited, whereby Nerine agreed to provide administrative, secretarial and accounting services for International.  

35)	On 28/8/01 the Appellants and International entered into what is described as an HR Support Services – Co-Ordination Agreement.  It provides for the Appellants recruiting the services of chemists and making recommendations to International.  It records that International is to be responsible for finally assessing and engaging any candidate.  The Appellants under this Agreement provide a crew monitoring and appraisal service.  The Appellants, under this Agreement, also carry out at International’s request, disciplinary investigations but International are responsible for any decision to be taken in the light of those investigations.

36)	By letter dated 1/1/98, the Appellants agreed with International that they, the Appellants, would be procure and maintain public and employers’ liability insurance in respect of the work carried out by the chemists.  The Appellants also thereby granted various indemnities to International.  

37)	In large measure, the arrangements between the Appellants and International operated in accordance with the various formal Agreements  and documents referred to above.

Miscellaneous

38)	The 42 process chemists in question are all UK taxpayers.  HMRC produced records for all of them showing for each of them, their National Insurance number, earnings for the tax year in question and a calculation of the class 1 Secondary contribution due ( see file section E/1-42). 

39)	Production B1/18-20 are examples of contracts of service entered into between International  and process chemists.

40)	Production B1/21 and 23 are examples of a contract between the Appellants and an “oil” company for the provisions of the services of process chemists 

41)	By letter to International dated 27/8/01, the Appellants intimated that they had been reviewing their records of contractual arrangements regarding International’s supply of crew and had noticed some discrepancies between invoices rendered by International and the sums paid to International by the Appellants.

42)	On or about 12/5/03, a meeting took place between Mr Marsden and officials of the HMRC.  At that meeting, the relationship between the Appellants and International was discussed and, in particular, the question of who was truly in control of International.

43)	By Fax dated 12/5/03 to International, the Appellants proposed a chemist named Matthews for a particular job on board an FPSO.  By Fax of the same date in reply International stated that they were not sure whether Matthews was suitable.  By further Fax that day to International the Appellants accepted International’s concerns and agreed that another individual was more suitable.

44)	The Inland Revenue issued Tax Bulletin 49 in October 2000 on Offshore Manning Arrangements for Mariners.  The Bulletin notes inter alia that (i) in recent years the UK shipping industry has transferred significant numbers of employment contracts either to non UK members of shipping groups or unconnected offshore employers in order to remain competitive with operators in other jurisdictions; (ii) under the mariners regulations, there cannot be any liability for secondary contributions if the employer (and, if different, the person paying the emoluments to the mariner) is not resident or does not have a place of business in the UK; (iii) the agency regulations cannot apply, even if the mariners’ regulations could be ignored, because the agency regulations only affect workers who were not already employees of the agency or the client; and (iv) the Inland Revenue accepted that bona fide arrangements where neither the employer nor the payer of the mariner is resident in the UK and neither have a place of business in the UK, will not create a liability to employers’ secondary NICs

45)	In 2003, at some point before 13/10/03, the Respondents issued Guidance on Offshore Manning Arrangements for Mariners and Clearance Procedure for Unpredictable Cases.  It considered the effect of the forthcoming Social Security (Categorisation of Earners) Amendment No 2 Regulations 2003 which came into force on 13/10/03.  It referred to a press release which explained that new regulations would be introduced to explicitly exempt mariners whose duties were wholly or mainly outside UK territorial waters from the scope of the host regulations.  It noted that following consultation with the Shipping Industry it had been decided to restrict the scope of the new regulations to duties performed inshore, in Category A, B, C, or D waters.  The regulations would exempt from the scope of the host employer’s regulations, employment of a mariner outside those categories of waters.

46)	By letter to International dated 9/11/04, the Appellants noted that certain interviews had been carried out on behalf of International.  CVs of the two most suitable candidates were enclosed with a recommendation and a request that International consider whether they wish to employ a specified employee.  Email correspondence was exchanged the same day regarding availability of the chemists and with International expressing the view that they wished to employee a particular candidate. The Appellants agreed.

47)	By letter to KPMG dated 19/12/05, HMRC requested KPMG to provide the information requested in Appendix 1 to that letter.  Appendix 1 sought identification of employees who worked on a fixed structure in the UK Continental Shelf waters, on a jack-up rig, and a stationary FPSO.

48)	By email to Nerine, dated 15/7/99, Mr Marsden described a particular chemist as a joker and stated to Nerine that he wanted him off his books as soon as possible.

49)	By letter dated 18/8/99, to Aker Oil and Gas Technology UK plc, a client of the Appellants, the Appellants described the chemists as full time employees of Oleochem

50)	By email dared 19/6/00 to Nerine, Mr Marsden requested the issue of several contracts of employment in relation to certain identified process chemists; the email also stated that a particular individual will be joining the company.  

Submissions

Appellants 

28.	Mr Baldry submitted that it was a condition of liability that the secondary contributor was resident or present in Great Britain.  There was a special regime applicable to mariners but the residence/presence condition still applied.  The Appellants sought to take advantage of the statutory scheme by establishing an offshore subsidiary and setting up staff supply arrangements.  The chemists are mariners.  The Host employer provisions do not and never have applied to mariners. The agency provisions in the regulations do not apply either, because International and not the Appellants is the employer.  The agency provisions did not apply where there was an actual employer.

29.	The general rule for liability to pay secondary Class 1 contributions is disapplied, he submitted, in relation to mariners.  The chemists in question fall within the definition of mariner in Regulation 115 of the 2001 Regulations.  Each chemist was a member of the crew.  If not a member of the crew then the chemists fell within the other branch of the definition.  Until the 2003 amendment to the host employer regulations, these provisions did not apply to mariners at all.  Now, they apply but only to a limited extent, namely mariners working in inshore waters.  This was made clear at the time by the Inland Revenue.

30.	As a longstop argument, Mr Baldry submitted that even if the chemists are not mariners and International is the employer, then the host employer rules cannot be applied.  This is because the personal service of the chemist is made available at least in part to the end client (the FPSO operator for example), who played an important role through for example the OIM, in controlling how the chemist carried out his day to day activities, and there are no provisions as to how liability should be apportioned. 

31.	Mr Baldry addressed the HMRC argument on sham but I need say nothing more about this as the sham argument has been withdrawn.  On the Ramsay argument, he submitted that the arrangements were put together after advice; it is agreed that International is separately managed and controlled; a staff supply agreement has been entered into; the arrangements are operated as the contractual documentation intended.  The intention was to establish that International was the secondary contributor and being foreign was not liable.  International’s lack of knowledge of the oil industry was irrelevant; it understood its function as employer.  The arrangements were genuinely operated in the manner set out in the documentation.  An honest and credible account of these arrangements was given by the witnesses.  It is accepted that but for the National Insurance contribution advantage the arrangements would probably not have been set up.  He referred to Barclays Mercantile Business Finance Ltd v Mawson especially at paragraphs 23 and 36.

32.	Mr Baldry submitted that the FPSOs were ships or at least vessels, being converted oil tankers.  Other statutory definitions should be considered with caution.  The chemists were members of the crew.  He referred to various dictionary definitions of crew, vessel, and voyage and emphasised the chemist’s vital role.  He submitted that the statutory phrase other capacity was a catch-all provision, which would extend to e.g. the person running a casino on a cruise ship.  As for cargo, he submitted that it did not matter that the oil was not transported from A to B by the FPSO.  The oil was in the tanks of the FPSO.  It was described as cargo by Marsden and Stephen.  As for voyage he submitted that it referred to the period when the vessel was plying its trade on the high seas, otherwise an electrician working on a refit while the vessel was berthed at port would be a mariner.  This could be years.  The overall purpose of the legislation was to confer special treatment on people working on vessels in the high seas.

33.	Mr Baldry also made a brief argument on the question of recoverability to the effect that the legislation obliges an employer to pay secondary Class 1 contributions only in respect of earnings which he himself has paid.  Here there is no dispute that International and not the Appellants paid the chemists.  This argument is developed in paragraphs 24 to 29 of Mr Baldry’s skeleton argument.  However, he subsequently agreed that this was an argument for another day and possibly another appeal.

HMRC

34.	Mr Thomson submitted that the arrangements between the Appellants and International, and the various contracts of employment between International and the chemists, all fell within the Ramsay principle.  He referred to WT Ramsay Ltd v IRC 1981 STC 174 and Barclays Mercantile Business Finance Ltd v Mawson 2005 STC 1.  In support of that broad submission he argued that in reality the Appellants continued to trade as they had done prior to setting up International.  The Appellants were receiving the services of the process chemists, whom they controlled and passed that control to their clients or the OIM of the particular installation where each chemist was deployed.  The contractual arrangements between the Appellants and International were artificial; their purpose was to avoid liability for payment of secondary Class 1 contributions; the Appellants were the experts and had the contacts in this sector of the industry and effectively selected the chemist employees; International had no such expertise; the fact that these arrangements gave them a commercial edge must be irrelevant otherwise there could be no Ramsay principle at all.  A separate submission based on sham was also advanced but subsequently withdrawn (correctly, in my view).  Mr Thomson challenged, in effect, the genuineness of some correspondence subsequent in date to a meeting between the Appellants and officials of the Inland Revenue which bore to show that International had the final say in and exercised judgment in relation to the recruitment of chemists.  Mr Thomson challenged the reliability and credibility of Mr Marsden, who gave evidence about this and other matters.

35.	Mr Thomson accepted that the FPSOs referred to in evidence were vessels within the meaning of the relevant legislation.  However, he argued that there was no evidence that the forty two chemists actually worked on FPSOs and there was evidence that some of them had worked on fixed structures.  This matter had been raised in correspondence in the past but the Appellants had produced no satisfactory evidence on the point either in the past or at the Hearing.  In similar vein, he argued that there was no evidence that the forty two chemists were resident in the UK when they entered into their contracts of employments.  There was no evidence that they posted their acceptance of the offer of contract of employment back to International.  The postal rule was an exception to the general rule that a contract was created when acceptance of an offer was communicated to the offeror.  In short, there was no evidence that the contracts of employment were entered into in Great Britain.
36.	Mr Thomson disputed that a chemist working offshore on an FPSP was a member of the crew for the purposes of the definition of mariner contained in Regulation 115 of the 2001 Regulations.  He referred to Anglo Argentine Live Stock & Produce Agency v Temperley Shipping Co 1899 2 QB 403 (for the discussion of crew), to Board of Trade v Baxter 1907 AC 373 (the Scarsdale) (discussion of voyage) section 313 of the Merchant Shipping Act 1995 (definition of seaman) and to Clark v Perks & Ors 2001 STC 1254 (discussion of the meaning of ship).  He also referred to Stroud’s Judicial Dictionary (7th Edition volume 3) for the definitions of crew, vessel and voyage.

37.	Essentially, the argument was that the crew were the individuals responsible for the navigation/running of the ship.  Chemists were present for the purposes of the oil.  FPSOs did not operate as a normal ship would.  When they were on station which could be for years this was a discrete period involving no navigation and not part of the voyage.  The voyage had been completed.  They were then installations acting as a control platform for the oil well.  Moreover, the oil was not cargo as it was not being carried anywhere by the FPSOs.

38.	As for the analysis of the statutory material, Mr Thomson submitted that (i) the 1978 Regulations applied to mariners all along; the Press Release is unclear, (ii) Regulations 115 and 117 of the 2001 Regulations disapply Regulation 145, (ii) the employer of a mariner could become liable under other regulations as they did not trump other regulations, (iii) the amendment to paragraph 9 in column A of Schedule 3 to the 1978 Regulations inserted by the 2003 Regulations clarified matters but did not change the law, (iv) Regulation 5 and paragraph 2, column A of Schedule 3 to the 1978 Regulations applied, (v) the Appellants were a host employer in terms of Regulation 1 of the 1978 Regulations, (vi) the Appellants were a host employer for the purposes of Paragraph 9 of column A of Schedule 3 to the 1978 Regulations, (vii) the Appellants are the employers of the chemists; the chemists are not mariners and so section 7(1) of the 1992 Act and Regulation 145(1)(b) of the 2001 Regulations impose liability on the Appellants as they had a place of business in Great Britain, (viii) if the Appellants are the employers and the chemists are mariners then liability is imposed on the Appellants by virtue of section 7(1) of the 1992 Act and regulation 117(1)(c) of the 2001 Regulations, (ix) if the Appellants are not the employer of the chemists but the chemists were not mariners, then International has no liability as the residence test under Regulation 145(1)(b) of the 2001 Regulations is not met, but the Appellants are liable by virtue of paragraph 2 of Schedule 3 to the 1978 Regulations, (x) if the Appellants were not the employer but the chemists were mariners, then International is not liable because of the residence test in Regulation 117(1)(c) of the 2001 Regulations, but the Appellants are liable because they are deemed to be the secondary contributor by virtue of paragraph 2 of schedule 3 to the 1978 Regulations or by virtue of paragraph 9 until 13th October 2003, when the 2003 Regulations came into force.

Discussion

General

39.	I found all the witnesses to be reliable and credible.  The only significant attack on credibility and reliability related to Mr Marsden.  Much was sought to be made in cross-examination of the fact that in the course of discussion in or up to May 2003, the Appellants had been unable to demonstrate to the satisfaction of HMRC officials that International had a decision making role in relation to the hiring and firing of the chemists.  Correspondence dated just after the meeting was produced demonstrating just that.  I was not impressed by this line.  Mr Marsden was plainly a chemist first and a businessman second.  He said so himself in evidence.  The nature of his evidence in relation to business matters such as corporate structures and shareholdings confirmed that.  He took little to do with the running of International.  In cross-examination, Mr Marsden was referred to a variety of correspondence with, it seemed, a view to showing that the contractual arrangements between the Appellants and International were not what they appeared to be.  The last three findings of fact illustrate the line.  While the contractual arrangements may not have operated strictly in accordance with their precise terms, that is the case with many commercial contracts.  It certainly does not mean or follow that the arrangements are a sham or must to be disregarded in some respect for tax purposes.

40.	HMRC led no evidence.  My additional findings of fact (paragraphs 29 above) are therefore based on the uncontradicted evidence led by the Appellants and the documents produced.  Subject to what I have said in the previous paragraph, there was no dispute about the authenticity, and where appropriate the transmission and receipt of the numerous documents and photographs produced.

Contractual Arrangements

41.	It is plain from the findings of fact that the chemists were employed by International who are a foreign employer for the purposes of the statutory provisions.  International paid the chemists’ salaries.  Thus, to state the obvious, the Appellants were not the employer of the chemists; nor did they pay their earnings.  They can therefore only be liable for secondary Class 1 contributions as secondary contributor if the statutory provisions treat them as secondary contributor.  

Further Conclusions on the Facts

42.	The primary findings of fact which I have made lead me to the following conclusions or evaluative findings.

Mariners

43.	First, the FPSOs are ships or vessels.  It is unnecessary to determine what the difference is for present purposes.  This seemed to me to be plain on the evidence and the findings of fact which flow from that evidence.  The fact that the FPSO is moored in one place for a very long time does not make it any less a vessel or ship.  A vessel may be anchored in the Antarctica for months or longer while environmental tests, and observations are carried out.  It does not cease to be a vessel during that period.  Ultimately, Mr Thomson did not dispute that FPSOs, as described in the evidence, were vessels.

44.	Second, each chemist who worked on one of the FPSOs was in employment under a contract of service as a member of the crew of a ship or vessel .  Such chemists fall within the definition of mariner in Regulation 115 of the 2001 Regulations.  Such chemists performed their duties for the benefit of the operator of the FPSO.  The personal service of such chemists was made available to the operator of the FPSO and rendered principally for the purposes of the business of that operator.  Such chemists were, when performing their duties, were under the ultimate control of the Offshore Installation Manager or such other individual who was in overall charge of the management and operation of the FPSO.

45.	Third, if each chemist was not a member of the crew, then he was in employment under a contract of service in another capacity on board the FPSO, namely as a process chemist. 

46.	Fourth, the employment in that other capacity was for the purposes of the FPSO.  It was also for the purposes of the FPSO’s cargo, namely the recovered and processed oil.

47.	Fifth.  The contracts of service between the chemists and International were entered into with a view to its performance while the FPSO was on her voyage.  

48.	Sixth.  The oil recovered from below the seabed becomes part of the cargo of the FPSO, while held in its tanks awaiting transfer to a receiving oil tanker.  I refer to primary finding of fact 22.  The finding is brief.  However, in evidence both Mr Stephen referred to the processed oil as cargo pending its transfer to an oil tanker.  Their use of the word cargo in that context seemed ordinary and natural.  That use fits the statutory context and I see no reason to give cargo in Regulation 115 of the 2001 Regulations a restricted meaning.

49.	In making these evaluative findings, I have considered all the submissions, the cases and other materials cited on this branch of the appeal.  In Anglo Argentine, the plaintiffs sought, in a claim for general average contribution, inter alia the cost of extra wages of cattlemen on board ship (with a deck cargo of cattle and sheep) during a voyage, where due to the need to put to port to carry out essential repairs, the voyage took longer than it should have taken.  The port was Brazilian, and this had other consequences which need not be discussed.  In the course of his judgment, Bigham J observed that the cattlemen were not part of the crew.  He relied on the fact that the cattlemen were not under the command of the master, were not in the service of the shipowners and were not in any way engaged in the navigation of the vessel.  The context was that the cattlemen were the employees of the cargo owners; they were given free passage on the vessel and their duties were to attend to the wants of the livestock; they plainly had nothing to do with the navigation of the ship.  That context is so different from the position, status and importance of a chemist on board an FPSO that nothing can be taken from the dicta of Bigham J one way or the other.

50.	In the Scarsdale, a fireman was engaged to serve on a steamship on a voyage not exceeding one year.  The steamship set off from Cardiff and proceeded to various ports returning to Southampton, where the whole of her cargo was discharged.  The fireman claimed to be entitled to his wages and discharge at Southampton; the master required him to remain on board until the ship returned to Cardiff.  The question was whether the voyage terminated at Southampton.  This was a question of fact but their Lordships were influenced by the interpretation of the fireman’s articles of engagement and a consideration of certain provisions of the Merchant Shipping Act 1894.  It was observed that other considerations included the duration of the adventure in point of time and its unity; its geographical limits and direction; whether new cargoes are shipped or new charters made.  Again the context was so different as to make these dicta of limited application to the facts in the appeal before me.  In essence the Scarsdale was concerned with the question whether the fireman, Baxter, should serve in a succession of voyages not exceeding one year’s duration.  Lord Atkinson observed that it was impossible to define affirmatively what a voyage is and that it was a question that must depend in each case upon the facts.  Again, I did not find this case to be of much assistance in reaching a conclusion on the evidence I heard.  I was also referred to the definition of voyage in Stroud’s Judicial Dictionary 7th ed in which the Scarsdale was cited, and in Chambers Dictionary (edition unspecified).

51.	I was referred to the definition of crew in Chambers, and the Oxford English Dictionary, 2nd edition 1989.  One definition was a gang of men on a ship of war, placed under the direction of a petty officer or told off for some particular duty, as manning a boat etc.  The Shorter OED is in similar terms.  These definitions do not necessarily restrict crew to those involved in the navigation of the ship or vessel, which was one of HMRC’s themes in the course of these proceedings.  That would exclude, for example, the ship’s cook or, to put it modern terminology, the ship’s catering staff.  I was also referred to the definition of crew in Stroud’s Judicial Dictionary 7th ed. vol. 3; it noted that crew does not always mean the whole crew and seems have been the source of the reference to Anglo Argentine.  In the Merchant Shipping Act 1995, to which reference was also made, seaman is defined as including every person (excluding masters and pilots) employed or engaged in any capacity on board any ship.  This definition is broad and does not restrict the definition to those engaged in navigating the ship.  There does not appear to be a definition of crew in that Act.

“Deeming” Provisions

52.	As already indicated, the Appellants can only be liable if the statutory rules treat them as the secondary contributor.  Two sets of provisions were discussed.  The first was what is known as the Agency rules.

53.	The provisions of paragraph 2 of Schedule 3 to the 1978 Regulations cannot apply where there was an actual employer.  Here, I have found that International were the actual employer of the chemists.  There can therefore be no room for deeming or treating the chemists as having been employed by the Appellants.  This analysis is entirely consistent with the published views of the former Inland Revenue in 2000.

54.	The second set of provisions is the Host Employer Regulations.  The essence of the dispute in relation to the amendment in 2003 to the 1978 Regulations is that the Appellants argue that the amendment imposes a restriction on the rules whereas HMRC argue that the amendment is a disapplication of the rules.  Thus, HMRC argue that the general rule was that host employers were liable under the Host Employer Regulations until 2003, when a restricted category was exempted.  The Appellants contend that mariners were not previously liable but that in 2003 a restricted form of liability was imposed (mariners working in inland waters).

55.	In my opinion, the Appellants’ submissions are correct.  Prior to the 2003 Amendment, what are described as the Host Employer Regulations did not apply to mariners.  Rules relating to mariners formed part of a discrete code which modified the provisions which would otherwise apply.  The general rule in Regulation 145 of the 2001 Regulations prescribing conditions as to residence or presence in Great Britain was made under what is now section 1(6)(a) of the Social Security Contributions and Benefits Act 1992.  Section 117 of the 1992 Act authorised modifications in relation to persons who are or have been or are to be employed on board a ship, vessel, hovercraft or aircraft.  Regulation 117 of the 2001 Regulations makes it plain that as respects the employment of a mariner Regulation 145 is disapplied, and, under Regulation 117, it is a condition of liability to pay secondary contribution that the secondary contributor is resident or has a place of business in Great Britain.

56.	The Host Employer Regulations were introduced in 1994 by an amendment to the Social Security (Categorisation of Earners) Regulations 1978.  Among other things, these 1978 regulations (in schedule 3 thereof) treated certain specified categories of persons as the secondary Class 1 contributor in relation to particular employed earners.  The statutory basis for those regulations appears to be what is now section 7 of the 1992 Act.  The 1994 amendment (inserting paragraph 9 to schedule 3) identified as a category of employment, the employment by a foreign employer where the personal service is made available to a host employer, and the personal service is rendered for the purposes of the business of the host employer.  

57.	Until the amending provisions contained in the Social Security (Categorisation of Earners) (Amendment No 2) Regulations 2003, referred to above, mariners were not a category mentioned in the 1978 Regulations.  The 2003 Regulations expressly provided that paragraph 9 of schedule 3 (above) applied to mariners, notwithstanding anything in regulations 122 and 124(1) of the 2001 Regulations.  This is of interest because regulation 124(1) in effect provided that the general rules as to liability for secondary contributions only applied where they were not inconsistent with the discrete provisions relating to mariners.  This provision along with the express application of the host employer rules only to mariners working in inland waters confirms that until 2003, the host employer rules had no application to mariners at all.  The 2003 Regulations did not change the law relating to mariners working beyond territorial waters.

58.	The result of the disposal of that argument in favour of the Appellants is that only where a mariner employed on or after 13th October 2003 and performing his duties wholly or mainly within category A, B, C or D waters, could there be any question of possible liability for secondary contributions resting on the Appellants.  I have been unable to identify any assertion in the submissions that some mariners were working within such waters.

59.	In the light of the findings I have made and the conclusions I have reached, it is unnecessary to consider either Mr Baldry’s longstop argument or Mr Thomson’s argument relating to the residence of the chemists when they entered into their contracts of employment.

The Ramsay Argument

60.	I have endeavoured to follow the approach set forth in paragraphs 28 to 42 in the opinion of the Committee in Barclays Bank, and in particular, paragraphs 36-38.  I am not concerned with any pre-ordained series of transactions, self cancelling events or arrangements which have no commercial purpose.  The general purpose of the relevant statutory provisions was to impose liability for secondary Class 1 contributions on employers and others where they have a place of business in Great Britain.  The categories of persons so liable has been broadened over the years and various exceptions have been created.  The legislative structure is not all embracing.  Mariners were given separate treatment under the 2001 Regulations; this accords with the separate basis in the primary legislation for the general provisions (1992 Act section 1(6) (a)) and the provisions relating to mariners and certain others (1992 Act section 117).  

61.	The facts show that the commercial structure was set up to take advantage of the existing legislative structure and elide liability for secondary Class 1 contributions.  This enabled the Appellants to trade competitively in the relevant sector of the offshore oil industry.  Indeed, the evidence of Mr Marsden, which I accept, was that had the Appellants not done so, they would have lost business.  Such a practice was acknowledged in the Tax Bulletin referred to above.

62.	The legislation deals specifically with mariners and others working in the offshore oil industry.  It deals specifically with foreign employers and host employers, and agency workers.  On the evidence, I have found that the facts are not embraced by the statutory provisions relied on by HMRC, however one construes those provisions.  Resort to the Ramsay principle, whatever that may mean, does not affect that conclusion.  Rather, the application of the guidance given in Barclays Bank endorses the result which has been reached having regard to the evidence I heard and the findings of fact which have been agreed or which I have made.

Result

63.	I find and determine, in principle, that those of the 42 chemists who worked on FPSOs during the relevant period were mariners within the meaning of Regulation 115 of the 2001 Regulations.  They were employed by International.  Throughout the relevant period, International did not have a place of business in Great Britain.  The condition of liability set forth in Regulation 117(c) of the 2001 Regulations is not satisfied.  There is no other statutory enactment by virtue of which the Appellants fall to be treated as secondary contributor in respect of the earnings of such chemists.

Other Matters

64.	The Appellants appeared to be of the view that if the issue of principle were determined, any disputed detail in relation to any of the forty two chemists could be agreed informally.  Mr Thomson did not take that approach and submitted that the appeal must fail for lack of evidence on such matters.  He informed me that HMRC had repeatedly requested the relevant information but that it had not been forthcoming (see finding of fact 47 above).

65.	It seems to me that, in this somewhat ambiguous state of affairs, that it would be wrong to dismiss the appeal for want of proof at this stage, where the evidential dispute appears to relate to only a few of the chemists in question.  Having reserved the final determination at the conclusion of the Hearing in October 2008, it seemed to me to be appropriate to issue this written decision in principle (in terms of Rule 18(5)(a) of the 1994 Rules as amended) on the main issues arising in the proceedings and thereafter to adjourn the making of the final determination until after the decision in principle has been issued, and the further questions arising from that decision have been agreed by the parties or, failing agreement, decided by the Tribunal.  It may be necessary to fix a further hearing to determine these matters of detail insofar as they still remain in dispute.  If so, arrangements will be made in the usual way to fix a hearing for this purpose so as to enable a final determination to be issued.

66.	In the meantime, I direct HMRC to inform the Appellants which of the forty two chemists they dispute were deployed on FPSOs.  

67.	In the light of my decision in principle, that seems to be the only issue of fact which, insofar as still in dispute, needs to be resolved.  I have placed the procedural onus on HMRC merely to start the ball rolling.  I have not placed any time limits on these directions.  If no significant progress is made, either party may apply for a further Hearing to be fixed. Should either party consider that further directions should be issued, they may make an appropriate application in the usual way.

68.	No question of expenses arises at this stage, and having regard to the rules on expenses, may never arise.

69.	In due course, a final determination will, if necessary, be issued in terms of Rule 18 of the 1994 Regulations and regulation 10 of the Social Security Contributions (Decisions and Appeals) Regulations 1999 SI No 1027.

J GORDON REID QC, F.C.I.Arb
SPECIAL COMMISSIONER

RELEASED: 12 January 2009

SC 3046/2008