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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Kieran Mullin Ltd v Customs and Excise [2003] EWHC 4 (Ch) (15 January 2003) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2003/4.html Cite as: [2003] EWHC 4 (Ch), [2003] STC 274 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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KIERAN MULLIN LTD | Appellant | |
-and- | ||
THE COMMISSIONERS OF CUSTOMS AND EXCISE | Respondent |
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Hearing dates: 11 & 12 December 2002
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Crown Copyright ©
Mr Justice Park
OVERVIEW
THE LEGAL BACKGROUND
i) Under the services to the salon structure the stylist provides his or her services to the owner of the salon for the purpose of enabling the hair of the salon's customers to be cut or styled. The price which the customer pays for having her hair dressed in those ways belongs to the salon, and the salon pays a fee to the stylist for his or her services (If the stylist was employed by the salon the payment would be a salary, but if the stylist is self-employed, like the stylists involved in the present case, the expression 'fee' is more appropriate). The structure is in the nature of a sub-contract the salon has to cut the customer's hair, and it engages the freelance services of the self-employed stylist to do the work. The stylist is the agent of the salon to provide the hairdressing service to the customer. The stylist is the human being who dresses the customer's hair, but as a matter of contract he or she is providing skilled services to the salon, and the salon is providing a hairdressing service to the customer.
ii) Under the services to the customer structure the contractual relationships are different. The stylist supplies the hairdressing service to the customer, and the salon provides facilities to the stylist to enable him or her to dress the customer's hair. The price which the customer pays for the treatment of her hair belongs to the stylist, and one would expect the stylist to pay a fee to the salon for the use of the salon's facilities
KML'S RENT A CHAIR CONTRACTS AND THE ASSOCIATED ARRANGEMENTS
"HAIRDRESSING RENT A CHAIR CONTACT
An agreement made on [date] between the Salon Owner – Mr Thomas Kieran Mullin of [address] and the Hairdresser [name and address]
Whereby the Salon Owner agrees to provide a chair to rent and the Hairdresser agrees to rent the chair on the following terms and conditions.
1. The Hairdresser declares that he/she is a self-employed hairdresser and acknowledges that he/she is responsible for his/her own income tax liability and National Insurance contributions and has submitted the appropriate arrangements to those departments.
2. The Hairdresser agrees to abide by the appropriate rules as contained in the Company Instruction Booklet.
3. The chair rental may be varied according to the situation of salon, experience of hairdresser, seasonal variations of trade, etc.
4. [A restrictive covenant restraining the hairdresser for one year after termination of the contract from operating as a hairdresser within half a mile of the salon.]
5. During the periods 1 April to 31 October and 1 November to 31 March a rent free period of 2 weeks and 1 week respectively will be granted for holidays.
6. The Hairdresser will, except on his/her agreed weekly rest day, be in attendance at the salon where he/she is working during normal opening hours appropriate to that salon.
7. One week's notice by either party is required to terminate this contract.
[Signatures]"
i) A formal point is that, although the party to it is named as Mr Mullin personally, it is common ground that, by the times with which this case is concerned, the actual party was Mr Mullin's company, KML.
ii) The Tribunal, having set out the terms of the agreement in its decision, continues immediately to make the following important finding of fact: 'We find that self-employed stylists of KML operate their businesses in accordance with the terms of the Hairdressing Rent a Chair contracts.' Thus the contracts are not shams, in the sense that when they were made the parties did not intend them to take effect according to their terms. Nor has it been the case that the parties entered into contracts which said one thing, but at some time thereafter started to do something else instead.
iii) In my opinion the most important part of the contract is the general provision at the beginning, after the word 'Whereby': KML agrees to provide a chair to the stylist to rent, and the stylist agrees to rent the chair. The contract does not go on to state explicitly what the stylist is to do with the chair which he or she rents, but the only realistic possibility is that he or she will use it to treat the hair of his or her own customers If he or she was going to use it to treat the hair of customers of KML, what point would there be in him or her renting it from KML?
iv) The contract is largely silent on the payments falling to be made by the stylist for the rental of the chair (except for paragraph 3, stating that rentals might be varied). Evidence was given by Mr Mullin that the payments were set by KML from time to time. The evidence also showed that in practice there were two elements in the payments: a rental element and a service charge. I believe that I am right that, either in whole or in part, their amounts were geared to the receipts paid by the customers.
v) After the main provision which follows 'Whereby' there are seven numbered paragraphs. Most of them deal with matters which are, in my opinion, consequential on the main provision. They indicate that, although KML wanted the stylists to be self-employed (as was indeed made explicit in paragraph 1), it nevertheless wanted to have a significant measure of control over how the self-employed stylists would carry on their businesses. They could not just turn up or stay away as they liked, but were expected to be in attendance at the salon during normal working hours except for holidays and rest days. Paragraph 2 refers to the rules in the Company Instruction Booklet. These dealt with such matters as punctuality of attendance, dress, and the provision by the stylist (whether employed or self-employed) of the tools and other equipment required. Like some of the other numbered paragraphs of the Rent a Chair contract they show a desire on the part of KML to have its salons properly staffed at all times by competent and well-equipped stylists who would provide to customers the standards of service which KML required, and these matters applied to self-employed stylists as well as to employed stylists.
HOW THE PRESENT CASE AROSE, AND HOW IT PROGRESSED IN THE TRIBUNAL
"In April 1998 I had occasion to examine your contracts and procedures with regard to Chair Rentals in your salons. From the information supplied at that visit I assessed for standard rated tax on the rental income received from the scheme.
The Commissioners have subsequently received information which clearly indicates that the self-employed stylists do not exercise control over their own actions and have ultimate authority over all aspects of their business.
The degree of control exercised over the self employed stylists is coterminous with that of sub-contractors making their supply to the salons and as such the onward supply to the public is standard rated.
The information which led to the reconsideration is detailed as follows:
• Holidays have to be applied for in writing and are often not approved.
• Self employed stylists are told to make up the lost day during weeks which include Bank Holidays.
• Self-employed stylists are not able to appoint a locum should they require time away from work.
• Self-employed stylists taking more than one week sick leave have to produce a sick note.
As a consequence the Commissioners require you to account for tax on the total value of the supplies to the public with effect from 1 May 1999.
Please address any queries with regard to this matter to myself at the above address.
Yours sincerely."
Paraphrasing the letter in terms which I am using in this judgment, it was to the effect that KML and its self-employed stylists were not operating a services to the customer structure at all, but rather were operating a services to the salon structure. On that basis the supplies of hairdressing services to the customers were not made by the stylists, but rather were made by KML, through the stylists as its agents or sub-contractors. Therefore KML was accountable for VAT on the full prices paid by the customers.
"... KML's self-employed stylists cannot be given the freedom to operate as truly self-employed persons for, if they were, KML's business simply could not operate. ... If the latter [the self-employed stylists at one of the salons] were allowed to come and go as they pleased – as self-employed stylists should be allowed to do – we fail to see how the salon could provide any sort of service acceptable to the public." (Decision paragraph 67.)
"... We are quite satisfied that KML exercises a degree of control over its self-employed stylists that is incompatible with their being independent contractors." (Paragraph 69.)
"It is quite plain, and we find, that the self-employed stylists have no possibility of operating as independent contractors within KML's salons: they do not have complete freedom to establish their own price structures and times of opening (including closure for holidays); they are unable to compete openly for clients within the salons, and to accept or reject them at will; and they are unable to make their own insurance arrangements. (Paragraph 74.)"
The Tribunal made other detailed points, mainly about things which KML required self-employed stylists to do or other things which it precluded them from doing – being things which in a looser contractual relationship a self-employed person might have been expected to be able to decide upon for himself or herself – but I think that the above quotations encapsulate the essence of the Tribunal's reasoning. The Tribunal added a concluding observation that KML's operating methods were not within the guidelines established between Customs & Excise and the National Hairdressing Federation.
DISCUSSION AND ANALYSIS
"The answer to the question, to whom were the services being supplied depended largely on the relationship between the stylists and the company … How the public or a customer perceived this situation was and is not a crucial or determinative factor in the resolution of that issue given the provisions of section 2 of the 1983 Act [now section 1 of the VAT Act 1994]. I accept [counsel's] submission on behalf of the company in this regard."
"What then did A and B agree? One looks first in any case of contract to see what the parties said to one another. First, what did they put into writing? If they did not record their entire agreement in writing, was what was written supplemented orally? If this does not provide the answer one looks next to see what implications, if any, should be drawn from statute, custom, usage, their previous dealings, etc and how they conducted their relations with one another after the contract had been made."
i) In my opinion the Tribunal paid insufficient attention to the terms and the legal effect of the Rent a Chair agreements. In the paragraphs of the decision under the heading 'Conclusion' it refers to some provisions of the agreements, but not to the one which in my opinion is the one which really matters. For example the Tribunal states in paragraph 64:
"The fact that the Rent a Chair Contract specifically requires a self-employed stylist to be in attendance at her salon 'during the normal opening hours appropriate to that salon' is sufficient on its own for us to find that self-employed stylists supply their services to KML, and not to the public."
I cannot agree with the specific point there made. The requirement for self-employed stylists to be in attendance during normal working hours seems to me to be neutral on whether, when a stylist is at a salon and treats a customer's hair, it is KML or the stylist who is supplying the hairdressing service to the customer. It might, I suppose, be said that the stylist supplies to the salon a service of being present so that the salon is fully staffed, but that does not mean that it must be KML which provides the hairdressing services to a customer. But my more fundamental point is that neither in that paragraph nor anywhere else in the 'Conclusions' part of the decision is there any reference to the central provision of the contract, that KML is renting a chair to the stylist and the stylist is renting the chair from KML.
ii) A closely related point is that the Tribunal nowhere explains how its conclusion that KML, not the self-employed stylists, supplies the hairdressing services to customers can be reconciled with the central provision of the contract and the finding that the self-employed stylists operate their businesses in accordance with the contract. As I have said, it appears to me that the conclusion cannot be so reconciled. At least the Tribunal needed to explain how it can be, but the decision contains no explanation.
iii) The Tribunal relies principally on the various elements in the contract and the instructions and rules (incorporated into the contract by paragraph 2) whereby KML has extensive powers of control over aspects of the activities of the self-employed stylists. In my opinion those elements would be relevant to a different question, but are at most of marginal relevance to the actual question which the Tribunal had to decide. If it was established that the stylists provided their hairdressing services to KML and there was a dispute about whether they did that as employees or as independent contractors, the degree of control which KML had over them and over their working hours would have been highly relevant. In the context of that question the concluding sentence of paragraph 69 of the decision would be appropriate: 'We are quite satisfied that KML exercises a degree of control over its self-employed stylists that is incompatible with their being independent contractors.' But, as it appears to me, the question is not whether the stylists provide their hairdressing services to KML as employees or as independent contractors. Rather it is whether they provide hairdressing services to KML at all, or whether they provide those services to the customers. On that question my opinion is that there is little relevance attaching to questions such as whether or not the stylists are free to stay away from the salons in normal working hours.
CONCLUSION