Commissioners for HM Revenue and Customs v. Secret Hotels2 Ltd., [2014] UKSC 16

The appellant ("Med"), which marketed hotel accommodation in the Mediterranean and the Caribbean through a website, required a customer to pay the whole of the agreed sum before arriving at the hotel, and Med only paid the hotel a lower sum for the holiday after it had ended pursuant to an accommodation agreement in which it was styled as agent. Med was required to charge U.K VAT on the sums collected by it unless it acted solely as an "intermediary," which the court found to be essentially the same as an agent.

Before concluding that Med was not required to collect VAT, Lord Neuberger found that Med was providing accommodation as an agent for the hotels, notwithstanding that Med:

• failed to account to the hoteliers for cancellation charges and interest on the amounts deposited (which Lord Neuberger stated, at para. 44, might represent a breach of the agency agreement or reflect Med's relative bargaining position)
• dealt with matters of complaint and compensation in its own name and without reference to the hotelier (but with any compensation ultimately recovered from the hotelier)
• treated the deposits as its own money
• reserved rooms in advance of sales (although the related payments were recoverable against the next season's revenues if the current season's bookings were insufficient)

Before going on to find that an agreement under which the appellant was stipulated to act as agent in fact created an agency relationship, Lord Neuberger stated (at para. 32):

When interpreting an agreement, the court must have regard to the words used, to the provisions of the agreement as whole, to the surrounding circumstances in so far as they were known to both parties, and to commercial common sense. When deciding on the categorisation of a relationship governed by a written agreement, the label or labels which the parties have used to describe their relationship cannot be conclusive, and may often be of little weight. As Lewison J said in A1 Lofts Ltd v Revenue and Customs Commissioners [2010] STC 214, para 40, in a passage cited by Morgan J:

• "The court is often called upon to decide whether a written contract falls within a particular legal description. In so doing the court will identify the rights and obligations of the parties as a matter of construction of the written agreement; but it will then go on to consider whether those obligations fall within the relevant legal description. Thus the question may be whether those rights and obligations are properly characterised as a licence or tenancy (as in Street v Mountford [1985] AC 809); or as a fixed or floating charge (as in Agnew v IRC [2001] 2 AC 710), or as a consumer hire agreement (as in TRM Copy Centres (UK) Ltd v Lanwall Services Ltd [2009] 1 WLR 1375). In all these cases the starting point is to identify the legal rights and obligations of the parties as a matter of contract before going on to classify them."