Howzat! Cricketer Bowled Out For A Duck By HMRC In English High Court Tax Case

• Published date: 03 July 2020
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Income Tax, Tax Authorities
• Law Firm: Arthur Cox
• Author: Mr Fintan Clancy, Ailish Finnerty and Caroline Devlin

Introduction

A recent English High Court decision (MV Promotions Ltd and another v Telegraph Media Group Ltd and another [2020] EWHC 1357 (Ch)) has highlighted the importance of hiring experienced tax lawyers to efficiently structure and document transactions, in this case due to the limits of rectification when a contractual mistake results in unexpected tax consequences.

Background

The case involved former international cricketer and cricket commentator, Michael Vaughan, and his personal service company. Vaughan and his company took a claim against Telegraph Media Group Limited (which consented to the relief) and HMRC seeking rectification of arrangements relating to Vaughan's engagement to write for the Telegraph. In 2008 Vaughan's personal service company entered into a contract with the Telegraph in which it was agreed that Vaughan would write newspaper articles for the Telegraph. In 2011 this contract was extended but the extended contract was entered into by Vaughan himself, rather than his personal service company. In a 2018 deed of rectification between the parties, it was agreed that Vaughan's personal service company was the correct party to the 2011 contract.

HMRC disagreed, stating that as a matter of interpretation the 2011 contract was between Vaughan and the Telegraph, and that the income paid to the personal service company in respect of the 2011 contract should be recognised for tax purposes as income attributable to Vaughan himself. HMRC further submitted that that the 2018 deed did not rectify the 2011 contract with retrospective effect. The court agreed with HMRC's interpretation of the contract so the question for the court was whether rectification for a common mistake could be granted as a remedy if all issues between the parties to a contract had been resolved (as it had been in this case under the 2018 deed) where rectification was being sought only to achieve a tax benefit.

Rectification

In determining whether rectification was an available remedy, Hodge J, relying on the judgment in FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd [2019], reiterated that the correct test to be applied in deciding whether the written terms of a contract might be rectified because of a common mistake is:

• that the document fails to give effect to a prior concluded contract or
• that, when they executed the document, the parties had a common intention in respect of a particular matter which, by mistake, the document did not accurately record.

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