HHJ David Hodge QC decided on whether Telegraph media earnings from 2011-2018 of former England Cricket captain Michael Vaughan should be taxed by HMRC as self-employed earnings
Contract – Interpretation – Mistake as to parties – Correction by construction
Contract – Rectification – Common Mistake – Discretion – Existing Deed of Rectification – Tax advantages
This is a report on a video hearing of the High Court in Liverpool held on the 21st May 2020 using Skype for Business. The decision resulting from it can be read here  EWHC 1357 (Ch). By way of full disclosure the author of this piece is referred to as “an interested journalist” in paragraph 1.
There were four parties. The two claimants were M V Promotions Limited and Michael Vaughan. The two defendants were Telegraph Media Group Limited and The Commissioners for Her Majesty’s Revenue and Customs.
Both claimants were jointly represented by Alfred Weiss (instructed by Brabners LLP (Liverpool)). Telegraph Media Group Limited did not take part in the hearing. Mr Richard Chapman QC (instructed by The Solicitor’s Office and Legal Services, HMRC, Manchester) represented The Commissioners for Her Majesty’s Revenue and Customs.
In the piece below, for the purposes of brevity, the same initials as outlined in paragraph 1 of the judgement are used. The Second Defendant is referred to as HMRC, the First Defendant as TMG and the First Claimant as MVP.
The hearing was before HHJ David Hodge QC (who is a Specialist Chancery Circuit Judge).
The hearing started with a warning that it was being recorded in Court 26, but that recordings other than by the organiser would be a criminal offence.
HHJ David Hodge QC started the hearing and the two barristers (Alfred Weiss and Richard Chapman QC introduced themselves). It was pointed out that TMG consented to the relief sought.
Alfred Weiss had three points, the first was he asked permission for a supplementary question to Mr Neil Fairbrother (one of the Claimants’ witnesses) about an agreement dated 1st November 2018 to assign imaging and merchandising rights (page 18 (paragraph 11) of his skeleton argument). Richard Chapman QC was asked by HHJ David Hodge QC if he had any objection, Richard Chapman QC did not.
The second matter raised by Alfred Weiss was the position on equitable remedy and the 2018 deed which did not resolve all issues between the parties (Ashcroft v Barnsdale  EWHC 1948 (Ch),  STC 2544 and Vivian v Koningsveld  EWHC 3961 (Ch)) and that he had been advised of the change of position by HMRC.
Richard Chapman QC explained HMRC’s changed position compared to that in the acknowledgement of service and apologised for it being “late in the day” but hoped it would streamline and speed up the logistics of the trial. He referred to First-tier Tribunal proceedings and closure notices prior to the deed of rectification.
HHJ David Hodge QC had two observations on the issue of construction because it was a binary question. HHJ David Hodge QC referred to the East v Pantiles (Plant Hire) Ltd (1981) 263 EG 61 case and pointed out that it was very rare for cases for HMRC to be wished to be joined as a party.
The hearing moved onto the witness evidence.
Alfred Weiss asked for Mr Fairbrother to confirm he was Mr Fairbrother.
After a short pause, HHJ David Hodge QC said that he would now ensure that the witness’s microphone was no longer on mute and that the witness’s video was turned on as well.
Neil Fairbrother asked if that was ok My Lord? HHJ David Hodge QC asked if his full name was Neil Fairbrother. The witness replied that it was. HHJ David Hodge QC asked the witness if he wished to take the oath on a faith book or make an affirmation?
Neil Fairbrother said he was sorry he missed that. HHJ David Hodge QC repeated the question about whether to take the oath on an appropriate religious faith book.
Neil Fairbrother replied he would take the oath on a religious book. HHJ David Hodge QC asked if he had one there? The witness replied that he didn’t.
HHJ David Hodge QC (patiently) explained that if the witness didn’t then the witness would have to take the affirmation.
The witness affirmation (was read to the witness in parts which the witness repeated) of “I do solemnly, sincerely and truly declare and affirm that the evidence I shall give shall be the truth the whole truth and nothing but the truth.”
HHJ David Hodge QC handed over to Alfred Weiss. The witness was asked if he had access to the electronic hearing bundle (he replied that he did). On page 19 of the bundle was the first witness statement of Neil Fairbrother. The witness was asked to look through it as it ran to 34 paragraphs, the witness was asked if it was his signature. It was. The witness was asked if he could confirm if it was correct and true, he replied “Yes”.
Adam Weiss said he had a question on one matter. He referred to the contract and it was said by HMRC that Michael Vaughan had assigned image and merchandising rights to MVP, did he have anything to say?
The witness replied that it was correct, the original company (MVP) opened in 2003 and was assigned image rights. These rights had to be used through the company and Michael Vaughan no longer had rights to use his own image.
Adam Weiss thanked Mr Fairbrother, he didn’t have any more questions, but he didn’t know if the Court or HMRC did not.
HHJ David Hodge QC asked Richard Chapman QC a question to which the answer was “no”.
HHJ David Hodge QC asked (in relation to the 1st November 2018 contract) that it was said that in 2003 that Michael Vaughan had assigned rights to the First Claimant company [MVP]? Mr Neil Fairbrother replied that when the company had been set up the image rights had been assigned at that point. HHJ David Hodge QC asked about the further contract dated 1st November 2018. Mr Neil Fairbrother replied that MVP had been set up in 2003 and still ran to this day [21st May 2020]. HHJ David Hodge QC asked if there had been an original assignment of image rights in 2003. The witness replied, “Yes, Your Honour”. HHJ David Hodge QC asked each barrister in turn, if there was any question arising out of his questions? Both barristers answered no.
HHJ David Hodge QC said that that concluded Mr Fairbrother’s evidence and he took it now as a matter for Mr Fairbrother as to whether he remained or did something else having regard to the lockdown. Mr Fairbrother thanked him. HHJ David Hodge QC said he was welcome to stay but could depart if Mr Fairbrother wished.
There was a further witness (Gavin Reoch) to which very similar preliminary questions were put after the affirmation was administered (this witness statement started at page 76).
However this witness was asked for their name and address (an address in London was given). Adam Weiss confirmed he had no supplementary questions. HHJ David Hodge QC asked if Richard Chapman had any cross-examination to which Richard Champman QC answered, “No”. HHJ David Hodge QC said that there were no questions and thanked Gavin Reoch for attending and it was up to Gavin Reoch whether he stayed, that concluded the oral evidence.
There were then legal arguments by both sides’ barristers, which are outlined in detail in the 66 paragraph decision resulting from the hearing.
However in a nutshell. There was a 2008 contract between MVP and TMG for MVP to provide the services of Michael Vaughan in return for money. In 2011, the 2008 contract ended and a new contract was agreed between TMG and Michael Vaughan (although the contract was signed on his behalf by his agent).
HMRC argue that as Michael Vaughan did not account for the amounts paid by TMG (for no fixed amount of articles) of £90k in year one (plus inflation each year) on his self assessment tax returns that HMRC was therefore owed tax for the period 2011-2018.
The amounts paid by TMG were instead incorporated into the accounts of MVP.
Complicating matters further, Michael Vaughan is a director of MVP and owns MVP (along with his wife Mrs Nichola Vaughan).
In 2018 a deed of rectification was agreed between MVP, Michael Vaughan and TMG that changed the contract parties to the original parties.
The judicial decision of HHJ David Hodge QC is outlined in paragraphs 65-66 which are quoted below:-
“65. For these reasons the claim is dismissed. On the true interpretation of the 2011 contract, the contracting parties are and have since its inception been TMG and Mr Vaughan. Whilst I find that in entering into the 2011 contract TMG, MVP and Mr Vaughan were all labouring under a common, rectifiable mistake as to the true identity of the counter-party to the contract, in the exercise of the court’s equitable discretion, I decline to order that it should be rectified such that the contracting parties have, since the inception of the 2011 contract, been MVP and TMG.
66. This case affords a vivid illustration of two important points. The first is that where evidence of pre-contractual negotiations, and/or post-contract conduct is crucial, rectification may, in principle, be available where the interpretative process is unable to assist a claimant. However, and secondly, the remedy of rectification may, in an appropriate case, be withheld where the parties have sought by themselves to correct any relevant mistake in the underlying document by entering into a deed of rectification.”
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