Spearmint Rhino Ventures (UK) Ltd v R & C Commissioners
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE MANN,Mr Justice Mann |
| Judgment Date | 23 March 2007 |
| Neutral Citation | [2007] EWHC 613 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH/2006/APP/0214 |
| Date | 23 March 2007 |
[2007] EWHC 613 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Mann
Case No: CH/2006/APP/0214
MR. D. MILNE Q.C. and MR. A. HITCHMOUGH (instructed by Messrs Jeffrey Green Russell) for the Appellant.
MR D. GOY Q.C. and MS. N. SHAW (instructed by The Solicitor's Office of HM Revenue & Customs) for the Respondent.
Hearing dates: 18 th January 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an appeal from a decision of the VAT & Duties Tribunal (Chairman Sir Stephen Oliver Q.C.) given on 27 th January 2006 in which the Tribunal allowed an appeal against a ruling that the appellant (“SR”) made supplies of entertainment services to customers at or through its six clubs in the UK. The services in question were entertainment by dancing and entertainment by providing companionship for a specified period of time at the clubs. The issue that arises on this appeal is whether the supplies are in fact made by SR or whether they are made by the dancers in question. SR maintains that the latter is the case. The appeal has the by-product of enabling the judiciary to fill in some of the gaps in its knowledge demonstrated, but teasingly left, by Sutton v Hutchison [2005] EWCA 1773 at paragraph 1.
Outline facts
It will assist in a consideration of the detailed facts and documentation if I set out an outline of the method of operation of the clubs. For the purposes of these proceedings, SR's club at Tottenham Court Road, London, was taken as a typical example.
The club is described as a “gentleman's club”. A member of the public pays £8 for admission and on entering goes into an area in which he (or she) may drink, socialise, eat and watch partially clad women dancing on a podium. At any one time (depending on the day, time of day and availability) there are between 20 and 140 young women available to provide the entertainment services in issue in these proceedings. Some of them will be those dancing on the podium. These proceedings do not, at least directly, concern that activity. The activities which concern me are those provided as a result of more direct engagement between the women and the customer. For a sum of money, the women can be engaged to perform private dances for the customer. For this purpose the customer (with or without accompanying people) and the dancer go to one of several booths where the private dance takes place. A fee of £10 is charged for a semi-nude dance; £20 is charged for a nude dance. Each dance lasts for a “track”, i.e. about three minutes. The dance is arranged as between the dancer and the customer. In addition to those services, the dancer and the customer can agree what is called a “sit-down”. For £250 (a sum which is in fact negotiable) a woman can be engaged to sit and socialise with the customer for an hour. Any additional dancing services will be the subject of a separate arrangement. Dancers are paid in cash or in Rhino chips – chips issued by the club on a credit card transaction and which can be used as a form of currency in the club.
It is common ground in these proceedings that the women are not employed by the club. They are all self-employed. They pay a sum to the club which allows them to ply their trade for a session of eight hours (it is £15 for a daytime session and £80 for an evening session). They enter into an agreement described as a “licence” which entitles them to enter and dance (and to some extent obliges them to as well). They also have to pay £40 every time they arrange a sit-down. There are some limited tips which they habitually or traditionally pay to various people, but I need not dwell on those. Other than that, no other sums pass between the club and the dancers. The monies which are paid for the dances and for the sit-downs go to the dancers. The customers do not pay the club for the dances and sit-downs. The club obviously provides the premises at which the dances take place, and it provides additional services such as the services of a “house mother” who helps to advise and look after them (and who is traditionally tipped £3 by each dancer for each session), and the assistance of security staff who will confirm the bargain made for each sit-down and who will apparently assist in the persuasion of a customer who might otherwise be minded not to pay.
The dispute between the parties is, as I have indicated, whether the entertainment services are supplied by the club or by the dancers. HMRC says that those services are supplied by SR to the customer. They are supplied through the dancers whom they have engaged. Accordingly, it is said that SR is obliged to account for VAT in respect of the consideration supplied for the services. SR says that the services are provided by the dancers themselves and not by the club.
The Tribunal decided that the contentions of HMRC were correct. From that decision SR appeals. Whether or not the Tribunal was correct depends upon a proper analysis of the relationships, and principally on a consideration of the effect of various transactional and other documents. Although those documents have to be set in their factual context, it was not submitted that the documents were in any way a sham or failed to record the true relationship between any of the parties. The relevant facts and documents are set out in more detail below. So far as the facts are concerned, they are taken from the facts as set out in the Tribunal's decision with an occasional reference to other parts of the material which was available to the Tribunal. There was no material dispute of fact in this matter.
The documents
The principal document affecting the relationship between the dancers and the club is called a Dance Performance Licence (“DPL”). It is no doubt deliberately called a “licence”. One is not, of course, to be taken in by labels. What ultimately matters is the substance of the relationship, not the labels that the parties might have chosen to put on any particular parts of it. This document is entered into between the club and each dancer. Its material terms are as follows.
The first section is entitled “Background”. In other documents it would no doubt be called “Recitals”. Paragraph 1 recites that SR operates “a business establishment at the Premises where live nude, semi-nude and/or bikini dance entertainment is presented to adult members of the general public”. Paragraph 2 provides:
“Owner is desirous of licensing to a Performer the right to use certain private and/or public areas of the Premises for purposes of presenting live nude, semi-nude and/or bikini entertainment to the adult general public pursuant to and in accordance with this Licence.”
And paragraph 3 provides:
“(3) Performer is desirous of licensing the premises for the purposes of performing live nude, semi-nude and/or bikini entertainment to the adult general public pursuant to and in accordance with this Licence.”
Clause 1 is entitled “Licence of Premises” and, so far as is material, reads as follows:
“A. Owner licenses to Performer the right during normal business hours to use those parts of the Premises designated by the Owner for the performing of live nude, semi-nude and/or bikini entertainment known as 'Booths' upon the terms and conditions set out below.
B. Performer shall exercise her rights under this licence in respect of the Booths at the Premises by occupying whichever Booth that she may for the time being chose [sic] together with a customer and, if relevant, another Performer.
C. Whilst in occupation of a Booth, Performer shall have the right to exclude and admit all others as she shall choose.
D. In return for her right to occupy a Booth, Performer shall pay the Licence Fee stipulated in clause 4 below.
E. Performer's rights to occupy a Booth under this clause will be for the duration of each dance that she performs in the Booth.”
Clause 2 deals with the “Term of Agreement”. It is expressed to be for one year, automatically renewing for three successive terms of one year each unless terminated by notice.
Clause 3 deals with the “Scheduling of Dates”. It provides for the Performer to establish the particular days “on which she desires to enjoy her licence in respect of the Premises”. The days are to be set one week in advance and for a minimum of eight consecutive hours, during which “Performer shall provide entertainment consistent with this licence”. It goes on:
“Owner shall make the Premises available to the Performer and the Performer hereby agrees to take up the licence in respect of the Premises for a minimum of three (3) sets per week. Once scheduled, neither Performer nor owner shall have the right to cancel or change any scheduled sets except upon material breech [sic] as defined below or as mutually agreed.”
Thus there is some form of obligation on the dancer to attend a minimum number of sessions. The clause goes on to provide for liquidated damages to be payable to the club for each session missed.
Clause 4 deals with the “Licence Fee”. I do not need to set out its terms. In summary, the evidence, as summarised by the Tribunal, was that at the Tottenham Court Road premises a dancer pays £15 to enter for a daytime session (noon to 8 p.m.) plus £5 per dance. For night-time sessions (8 p.m. to 4 a.m.) she pays £80 plus £40 for each sit-down for the first hour and £20 for any succeeding hour with that customer. Dancers at SR's regional premises pay a fixed £20 to enter plus £7 a dance.
Clause 5 deals with “use of Premises” and...
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