Payzone Uk Ltd and Another v Paul Charmatz
| Jurisdiction | England & Wales |
| Judge | The Deputy Judge |
| Judgment Date | 14 November 2013 |
| Neutral Citation | [2013] EWHC 4428 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HCRC02596 |
| Date | 14 November 2013 |
[2013] EWHC 4428 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
7 Rolls Building
Fetter Lane
London
EC4A 1NL
Mr Blohm QC
(Sitting as a Deputy Judge of the High Court)
Case No: HCRC02596
Miss Victoria Windle (Instructed by DLA Piper UK LLP) appeared on behalf of the Claimant
The Defendant, Mr Paul Charmatz, appeared in person
Approved Judgment
The first claimant in this case, Payzone UK Limited, carries on business as a provider of financial ancillary services, essentially in the United Kingdom (as its name indicates). It is a subsidiary of the second claimant, Payzone Group Limited, which is a company incorporated in the Republic of Ireland.
In 2006, the claimants (and I use that phrase advisedly, the two companies being associated) wished to engage Mr Charmatz as, in effect, director of sales and marketing. It is plain from the correspondence that I have seen, that he is a talented executive who brought much that was required to the claimants' business at that time. There were discussions about the basis upon which Mr Charmatz was to join the claimants' business and in June 2006, he joined Payzone Group Limited as a consultant. In law, as I understand it, he was a self-employed contractor with all the consequences that that entailed for the payment of remuneration and taxation.
The claimants wished to make Mr Charmatz their United Kingdom managing director. That is how Mr Bell, the Deputy Chief Finance Officer from Payzone Group expressed it. Subsequently, Mr Charmatz was employed by Payzone Group as European Director of Sales and Marketing. According to Mr Bell, and this has not been gone into in any real detail in the evidence, and I do not think it is greatly relevant, most of Mr Charmatz's work was intended to be performed in the United Kingdom, but there was certainly a possibility of some work being carried out elsewhere and throughout Europe.
There was a discussion at or about the time that Mr Charmatz was employed between himself and Mr Tim Murphy, who was the United Kingdom managing director at the time, at which it was agreed at Mr Charmatz's request, that he would be paid his salary gross. That is, a gross sum from which, whatever tax due should be deducted and, as I understand it, deducted and accounted for by Mr Charmatz.
Mr Charmatz was at the time resident in France and it appears to be common ground between the parties, and I would add understandably in the circumstances, that Mr Charmatz wished to structure the terms of his employment so that he could reduce his tax burden to the minimum.
Mr Charmatz was employed by Payzone Group from 1 September 2006 to 31 January 2009. During that period, it paid Mr Charmatz's wages gross, that is inclusive of any tax that was due upon it. However, during that period, Payzone Group recharged Payzone UK for Mr Charmatz's wages and Payzone UK paid the sums so recharged. In essence, although Payzone Group was the employer, Payzone UK ultimately financed Mr Charmatz's employment. The basis of this was explained by Mr Bell in his witness statement.
He said that internal accounting practices within the Payzone Group provide for country-specific costs to be transferred to the company to which they relate. For example, if consultancy fees relating to consultancy services provided in Sweden are invoiced to the second claimant, these are recharged to Payzone Sweden. Pursuant to these accounting practices, any employment costs incurred by the second claimant in respect of the defendant were cross-charged to the first claimant. So in effect, according to Mr Bell, this was a usual procedure in respect of expenses incurred primarily in respect of a specific cost centre and, because Mr Charmatz's work was substantially based in the UK, it was applied in his case.
In 2008, Her Majesty's Revenue and Customs ("HMRC"), carried out a spot check of tax payable and paid at Payzone UK. It asserted that, because Payzone UK had reimbursed Payzone Group for Mr Charmatz's wages, Payzone UK was Mr Charmatz's employer for the purposes of the payment of income tax. If that was right, then two consequences would follow. The first would be that Mr Charmatz would be liable to United Kingdom income tax payments and, secondly, that Payzone UK would be liable to pay that income tax, or at least a part of it, under the PAYE system.
Miss Windle, who appears on behalf of the claimants, says that the fact that that recharge was made and that therefore the ultimate employer was regarded as being Payzone UK rather than Payzone Group, was in fact irrelevant to Mr Charmatz's liability to income tax and that, by virtue of his work in the United Kingdom, Mr Charmatz would have been liable to United Kingdom income tax in any event.
I have my doubts as to whether that is correct, because it is inconsistent with the witness statements (which were not substantially challenged), put forward by both witnesses who gave evidence on behalf of the claimants and also inconsistent with my understanding of the evidence I heard from Mr Grey, who is the accountant for Mr Charmatz on this matter. However, in the circumstances, whether or not that is so, may not be material as Mr Charmatz has accepted that he was liable to the regime of taxation in this country and has not put forward an alternative case based on the claimants' obligation not to pay him so as to subject him to the effects of the United Kingdom tax regime. I will come on to that point in a little more detail later on in this judgment.
Subsequently, Payzone UK made payment of various sums to HMRC. In December 2011, they made a payment of a gross and round sum of £250,000 on account in order to ensure that there was no continuing liability for interest or penalties on their part in respect of the inquiry and obligations found thereunder that HMRC were conducting. However, they continued to negotiate with HMRC with a view to ascertaining the sums that were in fact and in law due, hopefully no doubt, as far as they were concerned, significantly less than the sum they had paid. In the event, they settled various claims against them by paying £183,479, of which it was said £110,407.73 related to Mr Charmatz's personal tax liabilities, both for income tax and for national insurance contributions.
By these present proceedings, it seeks to recover £107,938.13 plus interest from Mr Charmatz, and it does so by virtue of the doctrine of unjust enrichment. The claimants assert that, as a matter of law, Mr Charmatz was under an obligation to pay United Kingdom income tax and that Payzone UK Limited was under an obligation to account for it in advance pursuant to the PAYE provisions. When the agreement between the parties was that, as was in fact the case, Mr Charmatz's wages would be paid gross of tax, it followed that, as between the parties, the obligation to discharge that liability fell on Mr Charmatz and for that reason, as well as by reason of the fact that he was in law obliged to make the payment of income tax that insofar as Mr Charmatz's liability was discharged by Payzone UK, that Payzone UK is entitled to be reimbursed those sums by Mr Charmatz.
Various defences were raised on the pleadings, just as, it should be noted, various bases of claim for recovery of the money were raised in the Particulars of Claim, but in some regards this claim was simplified in the course of the hearing. In others, it has become a little more complicated. In his Defence, Mr Charmatz denied that Payzone UK was liable to pay his income tax. He asserted that he was resident in France and therefore liable to pay income tax as such. That particular contention has not been pursued at this hearing. Alternatively, he says that the claimants settled for too much. There was a dispute between HMRC and Payzone as to whether expenses of Mr Charmatz that Payzone had met were, as Mr Charmatz had claimed, wholly business expenses which he was entitled to be reimbursed, or was to a significant part personal expenses which fell to be treated as a personal benefit arising from employment and therefore taxable.
The claimant subsequently settled the claim on the basis as put forward by HMRC that 40 per cent of those payments should be treated as benefit in kind. It is right to say that Mr Charmatz has subsequently put forward accounts which appear, so far as I can see, to agree with that figure. What is said on behalf of Mr Charmatz is that, although for present purposes that split as regards expenses has been agreed, but subsequently it remains open to Mr Charmatz to challenge that and to, again, seek a reduction of his liability on the grounds that all of those sums should in fact be treated as a business expense. So much at the present time for division of expenses.
There is also a dispute as to whether Payzone UK should have argued more strongly as to the location of Mr Charmatz's work or not. I am not in a position to resolve those particular disputes on the evidence before me. It seems to me in any event that that is something in the circumstances of an arid enterprise because there is no evidence to suggest, other than that the claimants settled for the best figure that they thought the evidence entitled them to settle for in the circumstances. As was pointed out by Miss Windle for the claimants, this was not a zero sum game for the claimants. They had to pay the figure that was due and that included the payment of interest and penalties. There was no...
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