Vaught v Tell Sell UK Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 04 November 2005 |
| Neutral Citation | [2005] EWHC 2404 (QB) |
| Court | Queen's Bench Division |
| Date | 04 November 2005 |
| Docket Number | Case No: HQ04X03713 |
[2005] EWHC 2404 (QB)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
St. Dunstan's House,
133–137, Fetter Lane,
London, EC4A 1HD
His Honour Judge Richard Seymour Q.C.
(Sitting as a Judge of the High Court)
Case No: HQ04X03713
Richard O'Dair (instructed by Pollecoff for the Claimant)
Tom Weisselberg (instructed by Olswang for the Defendant)
H.H. Judge Richard Seymour Q. C.:
Introduction
The business of the defendant company, Tel Sell UK Ltd., to which I shall refer in this judgment as "Tel Sell UK", is the selling of goods to the public by means of television advertisements and programmes on a shopping channel. It seems that that business is sometimes called "direct response retailing". The ultimate parent company of Tel Sell UK is a Dutch company, Top Shop Holding BV, to which I shall refer as "Top Shop". Top Shop has a number of other subsidiary companies. One of them is another Dutch company, Tel Sell BV, to which I shall refer in this judgment by that name.
The director of, and controlling shareholder in, Top Shop is Mrs. Loes Mulder. In corresponding in the English language Mrs. Mulder has adopted the custom of using an English form of first name, Louise, and she was referred to by that name in many of the documents put in evidence.
The business of Top Shop was established by Mrs. Mulder in the Netherlands in 1993. As I understand it, Tel Sell BV is the largest direct response retailer in the Netherlands. Its name is apparently synonymous with television shopping in that country.
Since 1993 the group of companies at the pinnacle of which is Top Shop, and to which it is convenient to refer as "the Tel Sell Group", has expanded. Currently there are Group companies in the Netherlands Antilles, Germany and Belgium, in addition to those operating in the Netherlands and in the United Kingdom. The headquarters of the Group is at Almere in the Netherlands.
Tel Sell UK was incorporated in England and Wales on 12 June 1997. However, it did not commence active operations until about December 2001. From that time until 1 November 2002 the operations of Tel Sell UK were organised from the Netherlands with the assistance of an English broadcasting consultant, Mr. Elwyn Evans. Initially the sole director of Tel Sell UK was Mrs. Mulder. She has always been a director of the company. Mr. Russell Vaught, the claimant, did, however, have the title managing director of Tel Sell UK between 1 November 2002 and 26 June 2003. He was formally a director of the company between 10 February 2003 and 26 June 2003. Top Shop became a director of Tel Sell UK during 2003. The company secretary of Tel Sell UK was at all relevant times Mr. Marcel Roumen.
All of the goods sold to the public by Tel Sell UK or any of the other companies in the Tel Sell Group are acquired by the immediate vendor to the public from Tel Sell BV. The reason for that mode of operating is so that the purchases from suppliers of all the companies in the Group can be aggregated with a view to obtaining discounts based on the total supply to the Group. Tel Sell BV then sells on to, for example, Tel Sell UK, the goods which it needs to fulfil the orders placed by its customers at the cost of the relevant item to Tel Sell BV plus 7 %. It is apparently a requirement of Dutch law that the transfer prices of goods sold between companies which are members of the same group be fixed as if the companies were dealing at arms' length. One can understand the possible fiscal reasons for such a requirement. A document entitled "Internal Pricing" in which the basis of, and justification for, the transfer pricing policy of the Tel Sell Group was set out was put in evidence. Mrs. Mulder told me in evidence, and I accept, that that document was required to be filed with the Dutch revenue authorities to inform them of the pricing policy and, obviously, to give them an opportunity to challenge the policy or any aspect of it if it seemed appropriate to do so.
As I understand it, the broadcast output of a television shopping channel, such as that of Tel Sell UK, takes the form of what are called "infomercials". An "infomercial" is, apparently, a programme during the course of which goods available for purchase are demonstrated to viewers. It seems that apart from broadcasting on a dedicated shopping channel Tel Sell UK also broadcasts infomercials or shorter advertisements on other channels. In the trade, the channels which a television shopping operation such as Tel Sell UK uses are called "media". Obviously it costs money to broadcast infomercials and more traditional advertisements, and a matter of interest to Tel Sell UK or any of its competitors is which media generate the best sales of which products at any given point in time.
If a viewer wishes to purchase an item, the means by which that is done is to telephone a call centre. The customer's order is taken by the call centre, along, usually, with the credit or debit card details of the customer. A limited amount of business is conducted with persons paying by cheque. Where a customer wishes to pay by credit or debit card the details of the card are passed from the call centre to a data processing centre so that payment is obtained by the vendor. The goods sold are supplied to the customer from an appropriate warehouse, a process which seems to be called "fulfilment".
When Tel Sell UK commenced operations it was decided that it should not use a call centre of its own to take orders, but use a call centre in Castlebar, County Mayo in the Republic of Ireland called "Knxus". I shall refer to that call centre for the purposes of this judgment as "the Call Centre". For processing of credit and debit card payments it was decided that Tel Sell UK should use the services of a company called Bibit Payment Services, to which I shall refer in this judgment as "Bibit". Fulfilment of orders was handled by a company called Portica Marketing Support, to which I shall refer as "Portica", which is based in Hadleigh in Suffolk. At this time Tel Sell UK had no employees at all. Consequently all operational and management functions which were not out-sourced with third parties had to be performed by Top Shop or Tel Sell BV.
The accounting year of Tel Sell UK ran from 1 January to 31 December.
The operations of the subsidiary companies of the Tel Sell Group in Germany and Portugal were run in a similar way to that which I have described for the operations of Tel Sell UK, save that some of the activities which for Tel Sell UK were out-sourced were carried out by the German subsidiary for itself. In particular, the German subsidiary operated its own call centre. As at about August 2002 each of the companies in Germany and Portugal was managed by a person described as a "Country Manager". I shall have to come back to the question of what it was exactly that a Country Manager was supposed to do.
In about August 2002 it was decided by Mrs. Mulder that the operations of Tel Sell UK also should be entrusted to the control of a Country Manager. Instructions were given to a firm of recruitment agents, BDO Consultants Personeel & Organisatie, to which I shall refer as "BDO CP&O", to seek to identify suitable candidates for the position of UK Country Manager. BDO CP&O was associated with the international accountancy firm BDO. Subsequently it came to be known as BDO Camps Obers Adviseurs Personeel & Organisatie, but at the time material to this judgment its name was as I have said. The individuals within BDO CP&O who took on the task entrusted to the firm by Top Shop were Mr. Lucas van Zandvoort and Mr. Joost Vat. In the first instance an advertisement was placed on an internet web-site, www.Monster.co.uk. That advertisement included the following:—
"The key tasks of this responsible position will be to continue setting up and then managing Tel Sell England in the surrounding area of London. Important aspects of the job will be control of financial processes and purchases, which are made via Tel Sell the Netherlands, as well as co-ordination of the warehouse and call center located in Ireland. In addition, the Country Manager of Tel Sell England will have to keep track of retail and sales activities as well as developments in English (personnel and) office management. Because the Country Manager of Tel Sell England will, for the time being, not have any support staff, the job responsibilities will also include operational tasks.
In order to make this challenging and multifaceted job a success, you must have completed a suitable financial/economics college education. In addition, you must have demonstrable experience in a position with similar responsibilities in a commercial environment. Your character is that of an ambitious go-getter with a flexible attitude and the ability to build up an organisation independently. Because the parent company is Dutch, you will not have any problems with regularly having to travel to the Netherlands and also Ireland. This position requires a native English speaker."
The claimant, Mr. Vaught, responded to that advertisement in an e-mail sent on 28 August 2002. Following that application Mr. Vaught was selected for interview. The initial interview took place in London on 24 September 2002. It was conducted by Mr. van Zandvoort and Mr. Vat. There was a dispute as to exactly what was said, if anything, during this interview concerning the profitability of Tel Sell UK. I shall need to return to that dispute and the evidence in relation to it. However, it was not in dispute that Mr. Vat took notes during the interview and that, so far as they went, the notes were accurate. They included:—
" Experience with development of start-ups
Has a lot of experience with starting companies. Has started his own company and developed this...
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