The High Court remitted a case to the tribunal to consider further whether a football club was entitled to reclaim the VAT on payments made to footballers’ agents relating to contract negotiations and the transfer of players between clubs, where the tribunal's reasoning could not be sustained but there was insufficient material before the court for it to decide the case on the primary facts found by the tribunal.

Facts

The taxpayer was a Premier League football club employing 32 professional footballers, most of whom dealt with the taxpayer through players’ agents. The Football Association (FA), of which the Premier League was a member, licensed players’ agents and the agents’ conduct was regulated by the Players’ Agents Regulations of the world governing football body (FIFA).

The agents were concerned with three types of transaction when dealing with football clubs: the transfer of a player from one club to another; negotiation or re-negotiation of a player's contract; and negotiation of terms on which a player's contract with club was terminated. The negotiation of new contracts of employment offered to players by the taxpayer usually took place no later than the penultimate year of the players’ existing contracts. Typically, the taxpayer would approach an individual player's agent and invite him to act jointly for the club and the player in negotiating the terms of the player's new contract. The agent would then agree with the taxpayer the terms of his appointment including the fee he would receive if the player were to sign the contract, but the player was not made aware of those terms.

The agent was considered to act exclusively for the player in all matters other than the negotiation of new contracts but, in relation to the contract, not withstanding the alleged joint instructions, the agent and the taxpayer would act as if the agent had been instructed solely by the taxpayer. Following negotiations, said by the taxpayer to be between the agent acting for it and the player, a new contract would be drawn up by the taxpayer and signed by the player. Details of the agent's fee would be disclosed and a declaration completed by the taxpayer to the effect that the agent had acted for the club and his fee was to be paid in accordance with a written agreement between the club and the agent. The agent would then resume his former role as agent for the player in all matters.

In the taxpayer's view, the agents supplied their services to it, or to it and the players jointly, for the purposes of its taxable business and the taxpayer was, therefore, entitled to recover the VAT paid to the agents as input tax. Its claim was rejected by Customs on the basis that, because of non-compliance with the regulations, because of the exclusivity obligations, and because of the possible conflicts of interest that would arise, the agent could not have represented the taxpayer. It followed that there was a supply of services to the player only, irrespective of who was paying the consideration. It therefore disallowed the deduction of input tax and assessed the taxpayer accordingly.

The VAT tribunal dismissed the taxpayer's appeal deciding essentially that the agent was not in fact acting for the taxpayer so that the VAT claimed did not constitute the taxpayer's input tax and was therefore not recoverable (Decision No. 19,718). The taxpayer appealed.

Issue

Whether the VAT paid on players ‘agents’ fees was deductible as input tax, the supplies having been made to both the taxpayer and the individual players.

Decision

Mann J (allowing the appeal) said that it was clear that the expressed rationale of the tribunal's decision could not stand since it had relied on several propositions or bases that were not correct. First, it made a fundamental mistake about exclusivity. It misunderstood the express exclusivity provisions and assumed that there was a contractual obligation that the agent would not act for another. It got the exclusivity the wrong way round since it operated (if at all) to prevent the player from engaging another agent. It also found that there was an implied exclusivity obligation of the kind that it relied on even where there was not an express one. That was a misplaced assumption. Further, it wrongly considered that that sort of exclusivity obligation automatically prevented any contract existing between the taxpayer and the agent. Even if such an obligation did exist it would not necessarily prevent a contract arising but meant that the second contract was a breach of the first.

It also appeared that the tribunal might have assumed that the conflict of interest that would arise if the agent acted for both the taxpayer and the player would prevent there being a contract between taxpayer and agent. If so that was wrong. It was highly likely that a conflict would arise as it might well expose the agent to claims from the player, because it was apparent from the tribunal's findings that there was no disclosure of the terms on which the agent was acting for the taxpayer. Its existence might even mean that on the facts it would not be right to find that a conflicting contract had come into existence. However, it did not automatically mean that the taxpayer/agent contract did not or could not exist.

The tribunal also apparently found that a taxpayer/agent contract could not exist because that would be breach of the FA and FIFA regulations but again that was wrong. The regulations did not regulate the technical capacity of the agent to enter into contracts. They were no more than a form of contract themselves, and they imposed obligations, but an apparent breach of them did not necessarily mean that the breaching act did not in law happen, although the fact that a taxpayer/agent contract would be a breach might be a relevant factor in determining where in fact there was a contract. Thus, entering into a contract with the taxpayer might be a breach of the regulations, but it was a contract nonetheless.

Having decided that the decision was flawed, the question was whether the court should go on to decide the case in the light of the findings made by the tribunal, and in the light of such evidence as it was proper for the court to take into account. A large part of the documents that had been before the tribunal were before the court which was also directed to the transaction documents which related to the individual disputed transactions, but the court was not otherwise taken to the documents which might bear on the matters in question other than to two or three of the specific contracts between players and agents. Therefore the court did not have a full, or even good, evidential picture and should be cautious about deciding this appeal on the basis of what the evidence showed, and the main source had to be the express findings of the tribunal. On the evidence available the court was not prepared to assume that the generalised description of what tended to happen was the same in every case and conclude there was a contract in every case.

In all the circumstances, the reasoning of the tribunal could not be sustained, but neither its findings nor the material before court enabled the court to make a determination of the question of the existence of contracts. The only satisfactory way in which the issues could be resolved was by remitting the matter to the tribunal for further consideration of the relevant points on a case by case basis. Whether that could be done on the evidence already given, or whether there would have to be a fresh evidential case mounted, was something that the parties would have to determine in and with the tribunal. The tribunal would have to approach any rehearing on a proper legal and factual basis, on the footing that the exclusivity aspect was approached on the correct basis, and on the footing that it was not necessarily legally or factually impossible for there to be a taxpayer/agent contract in cases where a breach of the regulations or a conflict of interest existed. Whether there was a contract in any given case would depend on the facts of that case. Inevitably a proper identification of the services in each case would be central to the existence of a contract (Redrow and WHA considered).

Chancery Division.
Judgment delivered 23 March 2007.