20515
`VAT — agency — catering company supplying food and catering services to association of US Government employees at US Embassy — agreement entered into in 1998 agreed to have provided for supplies of food by appellant as principal and supplies of catering services as agent of association — change of arrangements in 2001 — whether appellant continued to supply catering services as agent of association — no — appeal dismissed

MANCHESTER TRIBUNAL CENTRE

 
 	
					ARAMARK LTD	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: David Demack (Chairman)

Sitting in public in Manchester on 13 September 2007

Raymond Hill of counsel for the Appellant 
 
James Puzey of counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Introduction
1.	On 18 September 1998, the appellant company, Aramark Ltd (“Aramark”) entered into a contract (“the 1998 Agreement”) for the supply to the American Embassy Employees Association (“the AEEA”) of food and catering services at the US Embassy in Grosvenor Square, London.  The AEEA is a private association of United States Government employees, chartered by the United States Department of State (the US counterpart of the Foreign and Commonwealth Office) and provides support services to United States Embassy employees.  The 1998 Agreement was superseded by a new contract on 29 May 2001 (“the 2001 Agreement”).  The relevant parts of the two agreements are to be found in the schedule to my decision.  It is common ground that Aramark supplied the food as principal under both agreements, but whilst it is also common ground that under the 1998 Agreement it supplied the catering services as agent of the AEEA, Aramark maintains that it continued to supply those services as such agent under the 2001 Agreement, whereas Her Majesty’s Commissioners for Revenue and Customs (“the Commissioners”) contend that it supplied them as principal.  The Commissioners base their contention on the following factors:
	(a)	The 2001 Agreement removed a reference to Aramark acting as agent and a provision for Aramark to be responsible for VAT payments made on behalf of the AEEA, both of which were contained in the 1998 Agreement.
	(b)	Aramark, rather than the AEEA, entered into a number of contracts for the purchase of consumables with various wholesalers.  Title to such purchases remained throughout with Aramark. (It is unclear whether the Commissioners maintain that that position obtained under the 1998 Agreement as well as under the 2001 Agreement). 
(c)	Under the 2001 Agreement, the burden of complying with the provisions of local laws and paying any local taxes rested with Aramark, not the AEEA.
(d)	There was an element of profit sharing in Article VIIA of the 2001 Agreement, which was not evident in the 1998 Agreement.
I am required to decide whether or not Aramark supplied catering services under the 2001 Agreement as principal in its own right or as agent for the AEEA.
2.	However, strictly speaking, Aramark’s appeal is against:
(a)	assessments made on 25 July 2005 relating to periods 07/02 and 10/02 in the sum of £47,740.52; 
(b)	assessments made on 3 October 2005 relating to periods 01/03 and 04/04 in the sum of £130,082.17; and
(c)	an assessment made on 13 October 2005 relating to period 07/04 in the sum of £13,600.33.
The total sum assessed was therefore £191,423.02.
3.	Aramark was represented by Mr Raymond Hill and the Commissioners by Mr James Puzey, both of counsel.  To assist me in reaching my decision, they provided me with two bundles of copy documents, and I took oral evidence from Mr Patrick Herald, Aramark’s catering manager, Mrs Anne Waterfield, Aramark’s tax manager, and Mrs Susan Kay France, an officer of the Commissioners and their assessing officer.  From that evidence I make the following findings of fact.
The facts
4.	Aramark is a subsidiary of Aramark Corporation – a multinational company based in Philadelphia, USA.  In the United Kingdom, Aramark operates as a contract caterer, operating employee restaurants and providing business dining and coffee facilities in a variety of sectors, including business and industry, judicial, education, healthcare, offshore and defence.  It also provides certain additional services including the maintenance of grounds, reception duties, cleaning and housekeeping.  In the UK it employs over 12,500 staff and, worldwide, its parent employs some 240,000.  
(a)	The 1998 Agreement
5.	Aramark initially obtained the right to provide catering at the United States Embassy in London under the 1998 Agreement which, whilst made on 18 September 1998, took effect on 5 January 1998. 
6.	The preamble to the 1998 Agreement indicated that the AEEA was granted a lease of the relevant catering premises by the Government of the United States of America; the AEEA did not grant a sub-lease or licence of those premises to Aramark.  
7.	The services to be provided by Aramark were set out in Article 1(A) of and Appendix A to the 1998 Agreement.  In particular, they required Aramark to operate the staff cafeteria on weekdays at breakfast, coffee time and at lunchtime, and the “West One Grill” on weekdays between 12 noon and 7.30 pm.  In both roles, Aramark was retained as “exclusive service provider”.  It was also the “preferred supplier” for party catering, including “the provision of a full conference and banqueting service available to all Embassy employees and bona fide guests and American corporate customers as detailed by the US Government”.
8.	For its services Aramark was entitled to reimbursement of its direct costs (including food and labour used at the Embassy site) as well as to a proportion of its general overheads (Article V(B) of the 1998 Agreement), a fixed management fee of £12,500 (Article V(D)), an incentive as a percentage of total sales, and a fee linked to quality performance (Appendix I).  The 1998 Agreement was expressed to contain the entirety of the agreement between the parties.
9.	Even though the AEEA itself argued that Aramark operated as principal both in purchasing stock and providing catering services under the 1998 agreement, as I have already explained, the Commissioners accepted that it acted as the AEEA’s agent in supplying those services.  Aramark was therefore only required to account for output tax on the management charge it raised with the AEEA, and not on the supplies of catering services themselves.  
(b)	The 2001 Agreement
10.	Although the 1998 Agreement was expressed to run for a period of five years, i.e. until 4 January 2003 (see Article XVII(A)), it was renegotiated early in 2001 and replaced by the 2001 Agreement.  
11.	The catering operation at the Embassy made heavy losses in 1998 – 1999.  By 1999 the AEEA was very unhappy with the 1998 Agreement and sought to replace it with a new one.  In letters dating from July and August 1999 it outlined the serious losses it had suffered on “Aramark’s food service” and made clear that it wanted a new contract with a “nil-subsidy” arrangement, i.e. one in which Aramark would be exposed to the losses that were then being suffered by the AEEA.  The correspondence indicated that Aramark was concerned about the “substantial VAT implications” of such an arrangement.  Further, in a Memorandum of 6 August 1999, the AEEA reiterated that it sought a nil-subsidy arrangement as “this would shift all the financial risk and potential for profit to Aramark”.  It did, however, recognise that it would have had to grant exclusive catering rights to Aramark were the company to have accepted the proposal.  The catering operation moved back into profit in 2001, at which point the contract was renegotiated.  The purpose of the renegotiation was to clear the AEEA’s outstanding debts to Aramark, and to allow the AEEA to participate in any future profits made by Aramark.  So much is plain from the terms of Articles VII and VIII of the 2001 Agreement.
12.	Under Article VII, Aramark was again entitled to a management fee from the AEEA, but at a reduced level of £12,000 per annum, and was additionally to receive a one half share of any profits above £12,000.  The other half profit share was to go to the AEEA.  Although the 2001 Agreement did not say so in terms, losses were also to be shared.
13.	Under Article VIII, Aramark agreed to waive outstanding management fees of £45,796.38 (see Article VIII(A)), but required payment within four months of a particular debt of £30,000, plus interest (see Article VIII(D).  The remaining debt owed by the AEEA to Aramark, totalling £102,655.81, was to be reduced by the application of all profits earned by both parties under the provisions of the 1998 Agreement as from 31 October 1999, or under the 2001 Agreement (see Articles VIII(B) and VIII(C)).  
14.	Article 1(A) of the 2001 Agreement provided that “Aramark shall furnish personnel, materials and equipment (as noted in Appendix 1), and services”.  Appendix 1 has not been located.  Aramark was to provide “a professional food and beverage service at the cafeteria and the West One Grill” (see Article I(A)(1)).  At Article II, Aramark agreed to provide a catering service in the Chancery and was made solely responsible for “uncollectable amounts” on the provision of catering, although the AEEA held a contractual right to waive that term.  However, again, the AEEA did not grant Aramark a sub-lease or licence to use those premises.  Furthermore, although Aramark again purchased stock as principal from its suppliers, the 2001 Agreement expressly stated that the relevant catering services were provided to the AEEA (Article III(A)), but Article III(D) made clear that the responsibility for paying taxes rested with Aramark as did the obligation “to maintain and record relevant documentation of compliance with local law and payments to local authorities”.  Most of the equipment required to undertake the catering services was provided by the AEEA (Article IV(C)(1) and Article X), and the AEEA was entitled to issue certain instructions relating to the operation of the cafeteria and the West One Grill (Article 1(A)(3)(a), Article II(A) and Article XII).  The AEEA was also entitled to examine and audit Aramark’s accounts (Article XIII).   As with the 1998 Agreement, the 2001 Agreement was expressed to contain the entirety of the agreement between the parties thereto (Article XVIII).  
15.	After the 2001 Agreement was completed, Aramark no longer invoiced the AEEA for expenses incurred but rather provided a statement of income and expenditure and quarterly statements of the profits or losses to be shared between the parties (Article XIII(C)).  
16.	Following the events of 11 September 2001 (commonly referred to as 9/11), the catering operation at the Embassy again became loss making, and the parties entered into discussions as to how to improve the situation.  In the course of them, Aramark wrote to the AEEA on 24 July 2003 pointing out that:
“… the main issue seems to be that even when the account is in profit the AEEA is still having to pay considerable amounts of VAT.  Over the last nine months from October 2002 until June 2003, the total management fee under the present arrangement was £9,000 plus a VAT liability on food of £11,716, we also accrued a loss of £4,798.50 over this period.”
17.	Consequently, Aramark proposed that it “take over the profit/loss of the account, as we are more able to reclaim the VAT than the AEEA”. 
18.	Early in 2004 the AEEA brought in Catercheck, an outside auditor, to review the operation of the 2001 Agreement, explaining its action in a letter to the Commissioners of 16 June 2005, as follows:
“In January 2004, in order to address outstanding concerns about stated Aramark losses, and the ongoing lack of transparency in the statements it submitted to AEEA, the AEEA asked Aramark to have its accounts reviewed by an independent auditor.  The results of that audit raised a number of concerns about VAT, which Aramark addressed by claiming to be an agent of the AEEA.  The AEEA disputed this, and other interpretations offered by Aramark concerning the provisions of its contract.”
19.	Catercheck wrote to Aramark on 11 February 2004 asking it to explain why the VAT position had not previously been made clear to the AEEA, and suggesting that the existing contract be terminated and replaced “with a concession agreement based on a percentage of sales to the AEEA”.  Aramark claimed to have understood by that that Catercheck was suggesting that the 2001 Agreement be changed from one under which Aramark acted as the AEEA’s agent to one under which Aramark acted as principal, but with a profit share going to the AEEA.  In my judgment, that claim cannot be inferred from the words used.
20.	Aramark’s response to the AEEA, dated 26 February 2004, dealt with the VAT effect of the 2001 Agreement as follows:
“With regard to the VAT position, I have reviewed our contract and renewal of this, and spoken to everyone involved from Aramark’s perspective since we were awarded the contract in 1998.  I would confirm that we trade the AEEA account as an agency account.  We were advised by AEEA that the American Embassy was VAT exempt and our assessment at the time led us to trading the account as agents only.  This clarifies Aramark’s responsibilities in isolating the VAT amounts highlighted in our invoice with all of the income on gross sales being returned to the AEEA account. 
From the outset, we were advised that output tax was not required within the American Embassy but input tax was unavoidable and this is clearly shown on our invoices and has been since 1998.  I am happy to provide you with sample copies of these if this would be of assistance to you.”
It is of course, only possible for the AEEA to make sales of liquor and cigarettes to Aramark because of this agency structure.” 
It is unnecessary for me to decide whether Aramark was informed that the US Embassy was “VAT exempt”: the fact is that it was not exempt.
21.	Aramark went on to state that, although it was “happy to consider an alternative route forward”, it was not “sure whether or not a concession agreement was appropriate, given the AEEA / American Embassy’s position of being able to guarantee revenue streams to allow such an agreement”.  
22.	In substance, Aramark claimed to be saying that in order to change the 2001 Agreement from an agency arrangement to one under which Aramark acted as principal, there would have had to be some prospect of Aramark being able to make a trading profit out of catering operations at the Embassy.  Whether or not it was an agency agreement is not the issue for determination: that issue is the reality of the relationship.
23.	In the events which occurred, the terms of the 2001 Agreement were not renegotiated, and the agreement was terminated with effect from 4 June 2004.
24.	Further facts emerge in the submissions of the parties, and must be added to those set out above.
Case Law
25.	It is common ground that whether a supply is made on an agency basis or as principal “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”.  However, “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” (see Spearmint Rhino Ventures (UK) Ltd v Commissioners of Revenue and Customs [2007] STC 1252 at [6] and [7], per Mann J).  
26.	That approach is supported by earlier High Court and Court of Appeal authority.  In Potter and another v Commissioners of Customs and Excise [1985] STC 45, which concerned the distribution of Tupperware, the Court of Appeal looked both at the terms of the application form to become a Tupperware dealer and the weekly dealers’ order form, as well as the evidence of a dealer in Tupperware.  Lord Donaldson MR set out the question to be answered in that case in the following terms (at page 50): 
	“… I take the view that the question for my determination is ‘whether the [taxpayers] expressly or impliedly agreed with their dealers that their dealers should represent them or act on their behalf selling and supplying Tupperware to guests at parties, and their dealers similarly agreed with the [taxpayers] to represent them or so to act’.  In dealing with that question I bear in mind the guidance to be obtained from the speech of Lord Pearson in Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130 at 1137:
		‘The relationship of principal and agent can only be established by the consent of the principal and the agent.  They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it, as in Ex parte Delhasse.  But the consent must have been given by each of them, either expressly or by implication from their words and conduct.  Primarily one looks to what they said and did at the time of the alleged creation of the agency.  Earlier words and conduct may afford evidence of a course of dealing in existence at that time and may be taken into account more generally as historical background.  Later words and conduct may have some bearing, though likely to be less important.  As to the content of the relationship, the question to be asked is: “What is it that the supposed agent is alleged to have done on behalf of the supposed principal?’”
27.	Similarly, in Music and Video Exchange v Commissioners of Customs and Excise  [1992] STC 220, McCullough J stated at 222j / 223a that in determining whether there was truly a relationship of agent and principal:
“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 their contract had been made.  The fewer the express terms, the more attention will have to be paid to the way the parties conducted their relations after their contract had been made.  Potter is an example of such a case.”
28.	That guidance was applied by Park J in Kieran Mullin v Commissioners of Customs and Excise [2003] STC 274 at paragraphs 34 – 36, and followed by Evans-Lombe J in Ringside Refreshments v Commissioners of Customs and Excise [2004] STC 426 at paragraphs 30 and 33 – 36.
29.	In each of those cases the courts stressed that the question of agency turned very much on the facts of the case and the relevant features of the industry sector in question.   In the catering industry, the Commissioners and the Contract Caterers Forum of the British Hospitality Association have agreed particular factors as indicating either a relationship of agency or as trading as a principal.  I shall return to their Memorandum of Understanding in that behalf later in my decision.
Aramark’s submissions on the express terms of the 2001 Agreement
30.	It is common ground that Article III(A) of the 1998 Agreement provided for Aramark to act as the AEEA’s agent to provide “Management Services on behalf of the AEEA”.   However, although the 2001 Agreement did not state in terms that Aramark was to continue acting as the AEEA’s agent, Mr Hill submitted that that was simply a question of labelling and not a matter of substance.  In particular, he noted that the 2001 Agreement explicitly stated that Aramark was providing services to the AEEA in return for payment from the AEEA.  That could be seen from Article III(A) of the 2001 Agreement, which stated that:
“ARAMARK will provide professional food service management as provided in this agreement.  ARAMARK will exercise its professional expertise in the food service industry to provide food services to AEEA.”  
31.	He maintained that it was clear from that clause that Aramark was not contracting with the AEEA to take a sub-lease or licence of the catering premises at the Embassy leased by the AEEA from the US Government so that Aramark could use those premises to run its own business of supplying catering to US Embassy staff.  Rather, he submitted, it was agreeing to provide a service to the AEEA; one of food service management.  
32.	Similarly, he maintained that the preamble to the 2001 Agreement, which stated that:
“This concessionaire agreement states the terms and conditions under which ARAMARK agrees to perform the required services and under which AEEA agrees to support and compensate ARAMARK”
made clear that Aramark was providing services under the 2001 Agreement to the AEEA in return for payment by the AEEA.  
33.	That, he contended, was further confirmed by Article VII(A) of the 2001 Agreement under which Aramark was entitled to a “management fee” of £12,000 per annum regardless of the net income from operations.  He submitted that it was abundantly clear that both parties agreed that Aramark was providing its services to the AEEA; it was not contracting with the AEEA to rent a pitch to provide catering in its own right to Embassy staff.  If the latter scenario had been the case, one would have expected Aramark to have paid a fee to the AEEA for such a right.  
34.	In the Spearmint Rhino case, Mann J held that the fact that the dancers in that case (similarly the hairdressers in Kieran Mullin) were making a payment for the right to trade from a particular location was critical in determining that they were principals and not agents.  At paragraph 42 of his judgment, he stated that:
“The critical provision of the contract [in Kieran Mullin] was the one which provided that stylists would rent a chair from the company in exchange for a payment, and that the stylists did not receive a fee from the company.  The parallels with the present case will be obvious – the dancers have a licence to dance, and they do not get paid by the Club”.  
35.	More specifically to the catering industry, Mr Hill observed that the Memorandum of Understanding stressed at paragraph 4(ii) that an important indicator as to whether a contractor operated as a principal was whether it had a lease or licence of premises:
“The contract should demonstrate that the contractor has some form of control over the running of the premises demised.  This can be supported by the client granting the contractor a formal lease or a licence to occupy a specific area of the premises.”
36.	In contrast, the Memorandum of Understanding went on to state at paragraph 5(ii) that, in cases of agency status:
“management and control of any premises occupied by the contractor should normally remain with the client.  No formal lease, sub-lease or licence to occupy would normally be granted, though an exclusive right to provide the catering management services would be granted to the contractor.” 
37.	Mr Hill submitted that it was clear from the preamble to the 1998 Agreement that it was the AEEA which leased the relevant areas from the US Government.  Nowhere in the remainder of the 1998 Agreement did the AEEA grant a sub-lease or licence to Aramark.  Rather, under Article IV(D)(1) of that agreement the AEEA was “at its own cost, [to] provide all areas and suitable access thereto … water, waste disposal and ventilation for use in the provided services, together with office facilities for the use of ARAMARK management staff”.  And by letter of 16 June 2005 to the Commissioners enclosing the text of a letter dated 8 July 1999 from the AEEA to Aramark, Aramark confirmed that the AEEA spent £200,000 in enhancements to the Embassy cafeteria during the course of the 1998 Agreement.  (I find that the AEEA did agree such a sum).  
38.	Similarly, under the 2001 Agreement there was no sub-lease or licence by the AEEA, but instead the terms of Article IV(D)(1) of the 1998 Agreement were repeated in Article IV(C)(1) of the 2001 Agreement.  Nor did Aramark have any control over the premises.  
39.	Nevertheless, consistently with the indications of an agency relationship under paragraph 5(ii) of the Memorandum of Understanding, the 2001 Agreement provided in Article VI(A) that “AEEA grants to ARAMARK exclusive rights as a food, beverage, and catering service provider within the chancery”.
The Commissioners’ submissions on the express terms of the 2001 Agreement
40.	Mr Puzey accepted the correctness of Mr Hill’s submission that under the 2001 Agreement Aramark provided “food services to the AEEA” in return for payment from the AEEA.
41.	However, he submitted that the following matters gave a different perspective: contrary to the 1998 position where Aramark acted as agent in providing management services, the 2001 Agreement required it to “provide professional food and beverage services at the cafeteria and restaurant” (Article 1(A)(1)).  Furthermore, the “AEEA granted Aramark exclusive rights as a food, beverage and catering service provider within the chancery” (Article VI).  Moreover, it was not a case of services being provided to the AEEA in return for payment.  The agreement provided for Aramark to share equally in the income generated – an agreement which turned out to involve sharing the losses as well.  The management fee was a relatively small element in the turnover of the catering service. 
42.	In both agreements, the provisions for remuneration were expressed as “compensation” to Aramark, not payment.  Mr Puzey submitted that the 2001 Agreement marked a significant rewriting of the relationship between the parties; no longer was Aramark to be reimbursed for expenses; it was thereafter to share the risk as would be expected of a principal not an agent. 
43.	Mr Puzey contended that the Memorandum of Understanding on VAT practice in the contract catering industry at best left Aramark’s position as an equivocal one and did not favour it.  
44.	He also submitted that in the instant case, the fact that Aramark had no lease or licence to occupy a specific area of land was of little relevance because the premises were part of the American Embassy and it could not be expected that any right of control over that property would be granted to an external company.  That did not provide an indicator of agency status.  
45.	The fact that Aramark provided food management services to the AEEA could not detract from the fact that it ran the cafeteria, restaurant and catering service in the Embassy.  It provided its own staff, set the menus, negotiated with and obtained payment from those who sought hospitality and delivered the same (Article 1(A)(2)).  In reality, Mr Puzey submitted that Aramark was in control of how the service was delivered, from purchasing, to menus, to pricing, to collecting payment and preparing an account.  The 2001 Agreement did not reserve those matters to the AEEA; the AEEA could inspect and make recommendations (Article XII) but the day to day control of the operation, and indeed the business strategy was left entirely in the hands of Aramark.  
Aramark’s submissions on the operation of the 2001 Agreement in practice
46.	Mr Hill submitted that the 2001 Agreement was operated as an agency agreement between 29 May 2001 and 4 June 2004, consistently with the terms set out above.  
47.	Although it was common ground that Aramark was responsible for purchasing food and other stock (other than wine, spirits and tobacco) as principal from wholesalers, Aramark sold that stock to the AEEA, which Mr Hill contended made the relevant supplies those of catering to the Embassy staff. 
48.	He maintained it was clear from the Memorandum of Understanding that an arrangement whereby the caterer acted as principal in purchasing stock and as an agent in providing catering was relatively common in the catering sector.  At paragraph 3, the Memorandum stated that:
“It is accepted by Customs that a contract caterer can act in the following capacities … as a principal in the purchase of food and drink stocks and other materials and commodities which are first supplied to the client; the contract caterer then acts as an agent of the client in supplying the prepared food to consumers, i.e., a contract caterer may, under a single contract, operate as both principal (when purchasing food etc) and agent (when supplying it to the final consumer).”
49.	Mr Hill also maintained that at least one point the Commissioners appeared to have accepted was that Aramark was selling the stock to the AEEA.  In their letter of 28 September 2005, the Commissioners stated that there was a supply of goods (foodstuffs, etc) from Aramark to the AEEA.  He submitted that that was inconsistent with Aramark acting as principal in supplying food directly to the Embassy staff.  Rather, it indicated that Aramark was acting as an agent insofar as the AEEA had title to the food at the time of supply to Embassy staff. 
50.	In particular, the Commissioners’ Memorandum of Understanding stated in paragraph 4(iii) that in order for a catering contract to attract principal status, “The contractor must own all stock at the time of supply to the consumer”.  Accordingly, if title to stock did pass to the AEEA, Mr Hill submitted that it showed conclusively that Aramark was acting as the AEEA’s agent.  
51.	In a letter of 1 October 2004 to the Commissioners, Aramark explained that, although:
“control of stock is not covered by the agreement, the practical arrangements agreed between the parties were that ARAMARK invoiced the AEEA for stock on the basis of consumption, meaning that ownership of stock passed to the AEEA at the time of supply.  This is a typical feature of an agency catering arrangement, and is common practice throughout the catering industry.”
And in a letter of 4 July 2005, Aramark again explained that sales of stock to the AEEA were shown on its sales invoices.  It added:
“it is a typical feature of a combined agency and principal catering arrangement that transfer of title occurs on a consumption basis and stock is therefore invoiced in this way.  Aramark invoiced the AEEA using this format throughout the course of both contracts.”
52.	In Mr Hill’s submission, those invoices clearly showed that Aramark was charging supplies of stock to the AEEA.  In particular, he noted (a) that invoices between Aramark and the AEEA under the 1998 Agreement were in the same format as those under the 2001 Agreement and (b) the invoices under the 2001 Agreement were also in the same format as other invoices issued by Aramark under other agency contracts.  He maintained that the invoices were consistent only with an agency agreement.  Where Aramark acted as a principal in catering contracts, it did not issue invoices of that type. 
53.	In correspondence with the Commissioners, and in particular a letter of 1 October 2004, Aramark maintained that:
	“… throughout the contract period, ARAMARK’s conduct was consistent with there being an agency relationship with AEEA.  In particular, this is evidenced by the fact that ARAMARK have always issued the AEEA with agency invoices.  
	These invoices provide the AEEA with details of sales and purchases (net and VAT) made from the catering outlet on their behalf and also specifically included in the statement:
	‘VAT Outputs and Inputs should be included in the client VAT return’
	This clearly set out that 
•	Aramark was making supplies, and recording associated VAT information, on behalf of AEEA
•	The AEEA was responsible for accounting for the VAT due on the invoice to [the Commissioners]”
54.	Mr Hill maintained that that was confirmed by the invoices issued to the AEEA under the 1998 Agreement and those issued to it under the 2001 Agreement.  Both sets contained the words “VAT Outputs and Inputs should be included in the client VAT return”.
55.	Finally, in this area Mr Hill submitted that it was clear from correspondence between Aramark and the AEEA during the course of the 2001 Agreement that Aramark understood at the time it was operating as the AEEA’s agent and that it was supplying the relevant stock to the AEEA for onward supply by the AEEA to the Embassy staff.
56.	Initially, the Commissioners formed the view that both the 1998 and the 2001 Agreements were agency contracts.  As they said in a letter of 26 January 2005 to the AEEA:
“These two contracts appear to support Aramark’s view that the AEEA has been acting as principal in making supplies of catering within the US Embassy.”
57.	Later, the Commissioners changed their opinion but, in Mr Hill’s submission, nevertheless appeared to have accepted that the features of the 2001 Agreement were consistent with the following six factors which would normally be present in an agency contract, as set out in paragraph 2.8 of the Commissioners Manual Volume V1-5 under the heading “How to distinguish agency”:  
(a)	Under the heading “title” the Commissioners’ guidance stated that “This is the most important consideration when dealing with supplies of goods.  In the letter of 28 September 2005, Mrs France, on behalf of the Commissioners, accepted that there was a supply of goods from Aramark to the AEEA; 
(b)	Under the heading “identity”, the Commissioners’ guidance stated that “The goods or services bought or sold by the agent on behalf of the principal must clearly be identifiable”.  In the letter of 28 September 2005, the Commissioners accepted that “If Aramark were acting as agent, the services sold on behalf of the AEEA would appear to be identifiable”;
(c)	Under the heading “value” the Commissioners’ guidance stated that “The principal must know the exact value at which goods or services have been bought or sold on his behalf and any discounts which the agent obtains must be passed back to the principal”.  In the letter of 28 September 2005, the Commissioners accepted that “Aramark provided the AEEA with a trading account at 4 – 5 weekly intervals, thus the AEEA knew the value of the services being provided”; 
(d)	Under the heading “separation” the Commissioners’ guidance stated that “The value of the agent’s service must be separately identifiable from the main supply, and should normally be known to the principal”.  In the letter of 28 September 2005, the Commissioners accepted that “Aramark charged AEEA a management fee under both contracts and AEEA was aware of the amounts being charged as stated in both contracts”;
(e)	Under the heading “no change” the Commissioners guidance stated that “The  direction of the main supply between buyer and seller cannot be altered by the intervention of the agent”.  In the letter of 28 September 2005, the Commissioners said that “Aramark states that the AEEA has an agreement with the US Embassy to provide food, beverages and catering services.  There is no copy of this agreement but it is mentioned in the 2001 contract (Article IV(C)).  The direction of the supply from the AEEA to the consumers would not be changed by Aramark acting as agent”;
(f)	Under the heading “nature and value” the Commissioners’ guidance stated that “agents cannot alter the nature or value of supplies which they arrange for their principal”.  In the letter of 28 September 2005, the Commissioners said that “The nature and value of the services supplied to the consumers would not be changed by Aramark acting as agent”.
58.	Instead, in Mr Hill’s submission, the Commissioners appeared to have changed their view solely for the four reasons set out in paragraph 1 of my decision.  Having noted that he had already explained why grounds (a) and (b) were misguided, Mr Hill proceeded to deal with ground (c).  The fact that Article III(D) of the 2001 Agreement stated that “Any local or other taxes which may be assessed against this contract shall be payable by Aramark” was not, in Mr Hill’s submission, inconsistent with an agency agreement.  If, as the other terms of the 2001 Agreement indicated, the contract was one of agency, then the taxes which might be assessed by the Commissioners against supplies made under it consisted of VAT on the management fees received by Aramark.  They would not have included output tax on food sales to members of the Embassy staff, which would have been the subject of separate contracts between the AEEA and those customers.  Given that Aramark had accounted for output tax on its management fees, Mr Hill contended that it had complied with the terms of Article III(D).  
59.	As to ground (d), Mr Hill further submitted that the fact that the 2001 Agreement contained an element of profit sharing was not inconsistent with a contract of agency.  Indeed, he observed that the Commissioners had themselves agreed in paragraph 7(vii) of the Memorandum of Understanding that:
“If a contract caterer acting as an agent receives a share of any profits realised it is likely to represent additional consideration for the contract caterer’s supply of agency services and will be taxable at the standard rate”  
60.	Similarly, in their own internal guidance in paragraph 2.8 of Volume V1-5 dealing with “separation”, the Commissioners accepted that although the value of the agent’s service had to be separately identifiable “it can be based on an agreed percentage of the sale or purchase price”.  In that regard, Mr Hill maintained that there was a distinction between an agent receiving a proportion of the profits of a catering operation as part of its fee for its services to its principal and a principal paying over part of its profits in return for a lease or licence of premises from which to conduct its own catering business.  He claimed that in the present case Aramark was in the former situation for:
(a)	The profit sharing arrangements in Article VII(A) formed part of a clause dealing with payment of a management fee from the AEEA to Aramark.  The profit share to Aramark was simply an additional form of payment to Aramark for its agency services; 
(b)	Conversely, there was no lease or licence by the AEEA to Aramark which would have enabled it to conduct its own independent business at the Embassy.  The AEEA’s portion of the profit share was not a payment from the AEEA for any such lease or licence but simply constituted the remainder of the net profits after Aramark had retained its share as an additional part of its management fee; 
(c)	If Aramark was supplying catering services as a principal in its own right to members of the Embassy staff, then the AEEA would not have been exposed to any losses which Aramark made.  Instead, it was clear from the evidence, and particularly an invoice exhibited by Mr Herald, that the AEEA was liable for losses made under the contract. 
The Commissioners’ submissions on the operation of the 2001 Agreement in practice 
61.	Mr Puzey first submitted that the “invoices” said by Aramark to show that it purchased stock as principal but then sold it to the AEEA and delivered it to the customers on behalf of the AEEA were in fact the statements of account required under Article XIII(C) of the 2001 Agreement.  That Article required Aramark to provide a monthly account of income and expenditure, and that was what, in Mr Puzey’s submission, was in fact provided.  The AEEA was not being invoiced for stock because the parties were sharing profits and losses, in contrast to the position under the 1998 Agreement.  
62.	Whilst the format of the statements of account remained substantially the same before and after 2001, Mr Puzey maintained that that did not represent or evidence the nature of the relationship between the parties.  The income and expenditure figures on the post 2001 documents balanced out each month and the only amount shown as payable was the £1,000 fee and VAT on expenditure.  As Catercheck noted, the VAT position between the parties was unclear, not least because the income figures contained no VAT until after that became a live issue in the spring of 2004.  The reason why income and expenditure balanced each month was that the “food costs non VAT” figure was a notional one in order to ensure that the figures balanced.  The AEEA was unhappy about the lack of transparency in the statements of account, which was why Catercheck was appointed.  In Mr Puzey’s submission, it was wholly unclear how the figure on the quarterly business results statement was arrived at.  
63.	He further submitted that the VAT treatment of income and expenditure on the statements of account was unclear, saying that whilst Aramark may well have believed or wished that it could maintain the pre 2001 position, not least in the form of its “invoices”, that could not be allowed to influence or dictate the construction of the relationship between the parties.  The 2001 Agreement changed that relationship.  
64.	There was nothing else from Aramark to support its assertion that stock was sold to the AEEA.  
65.	Of a claim by Mr Herald in evidence that Aramark was required to purchase cigarettes and wine from the Embassy and / or the AEEA, Mr Puzey contended that that was more consistent with a principal – principal relationship with Aramark acting as agent for the AEEA in respect of supplies of catering made to staff at the Embassy.  
66.	Mr Puzey also submitted that there was nothing within the disclosed evidence which supported the argument that the AEEA had control over stock.  Aramark made the purchases retaining the benefit of any discounts received, and suppliers’ invoices were addressed to it.  It negotiated the supplies of catering to clients at the Embassy, was responsible for collecting payment and, if payment was not made, was responsible for the loss.  Whilst it was perfectly possible for a caterer to act as principal when purchasing stock and agent when supplying it in the course of catering, the arrangements in the instant case when looked at in the round did not, in Mr Puzey’s further submission, support that analysis.  
67.	Drawing on the contents of Mrs France’s letter of 28 September 2005 to Aramark, Mr Hill contended that the Commissioners’ analysis of the 2001 Agreement suggested that they accepted it as consistent with an agency arrangement.  However, the analysis provided by Mrs France of the six factors set out in the Memorandum of Understanding did not in Mr Puzey’s submission, conclude that Aramark was acting as agent, but rather that the application of those factors was not inappropriate in the instant case, but neither was it determinative.  In particular, with regard to title, Aramark maintained that the Commissioners accepted that there was a supply of goods by it to the AEEA.  Mr Puzey accepted that to be so under the 1998 Agreement, as was evident from the final paragraph of Mrs France’s letter under the heading “1998 contract”, but submitted that the analysis of the 2001 Agreement which followed did not repeat that acceptance.  
68.	Mr Puzey rejected a claim by Mr Hill that the 2001 contractual term regarding the payment of taxes by Aramark was not inconsistent with agency as being a circular argument: it proceeded on the premiss that if the contract was one of agency, the only tax to which it could refer was VAT on the management fee.  That did not address the point that the term was a stark departure from the 1998 Agreement, which expressly provided for Aramark to act on the AEEA’s behalf in administering its VAT accounting in respect of the contract.  
69.	Mr Puzey accepted that profit sharing was not inconsistent with an agency arrangement, but submitted that in the present case the parties changed the 1998 “cost plus” agreement to one of nil subsidy so that they had to share profits and losses.  That new arrangement was part of Article VII which also dealt with the management fee under the general heading “compensation”.  He submitted that nothing could be read into that term to support either party.  Nor could the AEEA’s intention in renegotiating the 1998 Agreement to place responsibility for profit and loss upon Aramark be disregarded, particularly as that was successful, at least in part.  
Further relevant factors said by Aramark to point to a relationship of agency
(a)	Control over prices charged
70.	Mr Hill submitted that generally speaking the fact that a contractor had complete freedom to decide on the retail selling price was at least a pointer to a relationship between principals (see Potter at page 51(f)).  More specifically, in relation to the contract catering industry, he observed that the Memorandum of Understanding stated in paragraph 4(i) that “if the contractor has total control over pricing policy it would be indicative that the contractor is the principal.  At the very least the contractor must have some degree of discretion over pricing and quality of service etc. if he is to demonstrate he is a principal.  Total dictation by a client could be construed as an indication of an agency contract”.  Conversely, “a high level of control by the client over the pricing policy indicates that the contractor is acting as agent (though this is not conclusive in its own right)”.
71.	In the instant case, Mr Hill claimed that, although price setting was not specifically covered by the terms of the 2001 Agreement, the practical arrangements were that Aramark would propose price increases (or reductions) to the AEEA who would then decide whether or not to allow the proposed change.  Aramark repeated that explanation in paragraph 5 of its letter of 4 July 2005 to the Commissioners, adding that “the manager of the unit has confirmed that price setting was subject to this approval process (and approval was not always granted by the AEEA)”.  ( I accept that statement as fact).  
(b)	Control over Aramark’s operations
72.	Mr Hill submitted that the AEEA had a significant degree of control over Aramark’s operations, both through issuing instructions to Aramark (see Article I(A)(3)(a):
“Aramark shall perform the services required by the terms of and conditions of this contract in accordance with procedures approved by the authorised representative of AEEA.  AEEA may, from time to time, issue instructions to the contractor on the schedule, location and operation of the services to be performed under this contract.  Aramark will provide the AEEA with projected costs of fulfilling those instructions prior to commencement”);
and by inspecting Aramark’s operation and requiring it to implement suggested changes (see Article XII(A)):
“AEEA, or its designated representative, shall have the rights to inspect, in such manner and at reasonable times as it deems appropriate, all activities of Aramark arising in the course of Aramark undertakings under this concessionaire agreement.  Aramark shall be responsible for complying with the recommendations of such inspections and shall take prompt action to remedy any deficiencies noted in such inspections.  Aramark will advise AEEA of the cost associated with complying with such recommendations prior to implementation.”
73.	Furthermore, he added, Article II(A) provided that “No individual may commence work under this contract without express approval of AEEA”.
74.	The degree of control exercised by the AEEA, in Mr Hill’s submission, in practice reflected the degree of control permitted by the contract.  As Mr Herald explained, under the 2001 Agreement: 
	“… the catering operation was the AEEA’s business, which Aramark was managing on behalf of the AEEA.” 
Not only did the AEEA have the ability to insist that certain products be stocked, it also specified that the wine and tobacco be taken from its own Wine Mess.
(c)	Ownership of the assets used in making the supplies
75.	The fact that Aramark was required to carry out its activities using equipment, materials and supplies provided by the AEEA was again, in Mr Hill’s submission, more supportive of the agreement being one of agency.  The Commissioners’ internal guidance at Volume VI-5, paragraph 3.12(b) stated that in cases where the catering contractor was acting as an agent:
“Typically, the client will provide the kitchen and equipment, and any charge made to the contractor for this will be nominal and certainly not economic”.
76.	It was clear that most of the assets used in making the supplies under the 2001 Agreement were owned by the AEEA.
77.	At Article 4(C)(1), the 2001 Agreement stated that “the AEEA will at its own costs … provide ... heavy and light equipment, as detailed in appendix 1”.  That Article was reinforced by Article X(A), which stated that:
“AEEA shall furnish Aramark with all equipment, materials and supplies necessary to the performance of this concessionaire agreement except as noted in appendix 1.  Title to such property shall remain vested in AEEA.”
78.	Although appendix 1 was no longer available, Mr Hill relied on its practical effect as explained by Mr Herald:
“Most of the equipment in the unit was owned by the AEEA, including most of the large items such as the ovens, and small consumable items, such as cutlery.  The Appellant was responsible for notifying the AEEA when items such as cutlery were running low, but the AEEA would purchase replacements”.
79.	Mr Hill contended that Articles X(B) to X(E) by specifying additional rules as to use of the relevant equipment by Aramark further emphasised that it was the AEEA which owned and controlled the equipment, a matter yet further reinforced by Article IV(C)(2) which specified that it was the responsibility of the AEEA to “carry out all cleaning of the premises and equipment as provided in appendix 2”.
(d)	Fiduciary Relationship
80.	In relation to the question of fiduciary relationship, Mr Hill drew my attention to the following passage at paragraph 3.221 of De Voil’s Indirect Tax Service:
“An essential element of agency is that both parties have consented to the relationship of principal and agent, even if they do not recognise that their agreement amounts to such a relationship.  Another common feature is the existence of a fiduciary arrangement with an obligation on the agent to account to his principal at some stage in the relationship”.
81.	That comment was, in Mr Hill’s submission, supported by the tribunal’s reasoning in Pacitti v Commissioners of Customs and Excise (2000) Decision Number 16579, in which the tribunal commented that “agency generally involves a fiduciary relationship in one shape of form or another with an obligation on the agent to account to his principal at some stage in the relationship”; and by the tribunal’s comment in PBK Catering Ltd v Commissioners of Customs and Excise (1993) Decision No 11426 that “… the fact that St Dunstan’s had power to inspect the books and records of PBK is a determinative of the issue that PBK was acting as its agent”.
82.	Under Article XIII(A) of the 2001 Agreement, Aramark was required to “maintain a separate and distinct set of accounts, records, documents and other evidence sufficient to identify and verify all costs incurred, and the receipt, use and disposition of all AEEA / Embassy property provided to Aramark under this concessionaire agreement”.  Furthermore, under Articles XIII(B) and XIII(C): 
	“B. 	AEEA, through its designated representatives, shall have the right to examine, review and audit any and all records of the accounts related to this concessionaire agreement.  Aramark shall retain its books and records pertaining to this concessionaire agreement for a period of at least three years after the stated period of performance.
	C.	Aramark will render to AEEA a monthly accounting of income and expenses within 20 calendar days of the end of each month.  Aramark will make site manager available to members of the board of directors of AEEA monthly to review the prior month’s financial results.  The Aramark management team will not be required to spend more than two hours per month addressing the full board of directors of AEEA”.
83.	Again, Mr Hill maintained Article XIII was enforced in practice by the AEEA.  Mr Herald claimed to have “discussed the financial performance of the catering operation with Mr Lohman at the end of every week” and “Each month provided a spreadsheet showing the profit or loss from the operation for that month” which he discussed with the AEEA.  Furthermore, by calling in Catercheck, the AEEA did exercise its right to audit Aramark’s records of the catering operation at the Embassy.  
The Commissioners’ observations on the further relevant factors said by Aramark to point to a relationship of agency
(a)	Control over prices charged
84.	 Mr Puzey observed that the claim by Aramark that the AEEA controlled pricing of the supplies which were made was in issue between the parties, and Aramark had produced no contemporaneous evidence to support its assertions save the oral evidence of Mr Herald.  Further, the AEEA considered that Aramark controlled the setting of prices, albeit with some consultation with the AEEA, and in a Memorandum of 15 February 2001 referred to some charge to the client as being “Aramark’s charge”.  
(b) 	Control over Aramark’s operations
85.	Whilst the 2001 Agreement provided for the AEEA rights of inspection and to issue instructions “from time to time”, Mr Puzey submitted that that fell far short of giving the AEEA control over how Aramark ran its operations on a day to day basis or any control over its business development strategy at the Embassy.  Given that the AEEA had a financial interest in the success of Aramark’s operation, he maintained that it was hardly surprising that such rights were retained, but it did not demonstrate that Aramark was acting as an agent.  
(c)	Ownership of the assets used in making the supplies
86.	The fact that staff used by Aramark had to be vetted and cleared by the Embassy was only to be expected given the nature of the premises.  Likewise, Aramark’s use of equipment provided by the AEEA in making supplies of catering was to be expected given that the AEEA had previously run its own catering operation at the Embassy and invested £200,000 in enhancing the cafeteria during the period of operation of the 1998 Agreement.  
87.	However, as was clear from Article 1(A) of the 2001 Agreement, Aramark was also to provide the materials and equipment in accordance with Appendix 1.  Mr Puzey added that it may also have been the case that given the fact that that was the American Embassy, supplies of crockery, cutlery, linen, etc. would have been obtained through the Embassy in any event.  
(d)	Fiduciary Relationship
88.	Aramark relied upon the provisions of the 2001 Agreement concerning the maintenance of financial records or inspection by the AEEA as supportive of its claimed agency status.  However, the AEEA had agreed to share profits and losses with Aramark, and thus, in Mr Puzey’s submission, would have expected to be able to ascertain how those figures were arrived at.  In fact, the absence of transparency in those records was one of the factors which appeared to have contributed to the termination of the 2001 Agreement: both parties had a direct interest in the success or failure of the operation.
Conclusion
89.	In reaching my conclusion, there are two points I should make at the outset.  First, I recognise that the US authorities would have been most unlikely to agree to Aramark being granted a sub-lease or licence of the premises the subject of the two agreements with the AEEA.  Security considerations alone would, in my judgment, have been sufficient to rule out any such possibility.  But that is not to say that Aramark had no control over the running of the premises involved.  Within the security constraints in place, the evidence indicated to me that Aramark did have a degree of control which in ordinary circumstances could be construed as a licence.  Secondly, the provision in Article II(A) of the 2001 Agreement that no individual might commence work at the Embassy without the “express approval of AEEA” was another indication of security considerations being matters of the highest priority, and overriding other indicators of the relationship between Aramark and the AEEA.  I regard neither of the matters to which I have referred as indicative of an agency relationship in the particular circumstances of the instant case.  Nor do I consider the use by Aramark of the equipment, cutlery and pottery of the AEEA to constitute a catering service prior to the 1998 Agreement.  
90.	I then turn to consider whether the provisions of Article III(D) of the 2001 Agreement marked a substantial departure from the 1998 Agreement and were inconsistent with Aramark’s claim that that agreement merely ensured a continuation of the existing catering service, as submitted by Mr Puzey.  In contrast Mr Hill maintained that the 2001 Agreement was intended as a continuation of Aramark’s catering service and to formalise the arrangements for payment of unpaid amounts due from the AEEA to it.  It was against that background that he contended that Aramark continued to act as the AEEA’s agent under the 2001 Agreement and, just as under the 1998 Agreement, was required only to account for output tax on its management fee and not on the supplies of catering services.  He placed particular emphasis on Article III(A) as expressly stating that the catering was supplied “to the AEEA”.  In my judgment, neither party considered whether the 2001 Agreement made any fundamental change to the arrangements between them, both concentrating on the financial changes referred to in paragraphs 12 and 13 of my decision.  I take the view that Article III(D) did make a substantial change to the 1998 Agreement, and was not consistent with a mere continuation of the existing catering service.  I accept that Article III(A) provided for Aramark to supply “food services to AEEA” but, as Mr Puzey observed, Articles 1(A)(1) and VI of the 2001 Agreement indicated that its services were to be provided “at the cafeteria and restaurant” and “within the chancery” respectively.  In my judgment, Article 1(A)(1) and VI rather than Article III(A) correctly reflected the situation prevailing from 2001 onwards:  Aramark provided the catering service to Embassy staff and others, not to the AEEA.  
91.	Following completion of the 2001 Agreement, Aramark was no longer to be reimbursed for expenses, and was thereafter expected to share the risks associated with the catering operation.  That too points to an end of the agency agreement.
92.	I am unable to accept Mr Hill’s submission that food and other stock purchased by Aramark from wholesalers were sold to the AEEA.  In my judgment, the evidence adduced did not support such a claim.  Rather it indicated, and I find, that such purchases were used by Aramark in its supplies of catering services to Embassy staff and other visitors to the Embassy.  As Mr Puzey correctly observed, the “invoices” referred to by Aramark were the statements of account provided for in Article XIII(C) of the 2001 Agreement: the AEEA was not invoiced for stock because the parties were sharing profits and losses.
93.	I need not repeat the submissions made by Mr Puzey set out in paragraphs 61 and 62 of my decision; suffice it to say that I accept them unreservedly.  
94.	It is quite plain from the evidence that initially the Commissioners accepted the VAT position under the 2001 Agreement to be the same as that under the 1998 Agreement, and it was on that basis that Mrs France wrote the letter of 28 September 2005.  Clearly, they subsequently changed their opinion.  Again, I accept the submissions of Mr Puzey that application of the six factors set out in the Memorandum of Understanding identified by Aramark as indicative of an agency relationship was not inappropriate in the instant case, but neither was it determinative.  Nor were the provisions in the 2001 Agreement regarding the payment of taxes by Aramark and the “compensation” provision in Article VII.
95.	It will be recalled that Aramark claimed that the AEEA controlled the prices of the supplies it made.  But as Mr Puzey noted, beyond the oral claim in that behalf made by Mr Herald, Aramark produced no other contemporaneous evidence of such control.  That there may have been discussions with the AEEA as to pricing policy, I accept, but no more.  In my judgment, the AEEA did not control prices charged for food at the Embassy.
96.	There is but one other matter with which I must deal, that of the payment of the annual management fee of £12,000 to Aramark.  Ordinarily that would have been an indication of any agency arrangement between the AEEA and Aramark, but in the instant case, bearing in mind that it was a relatively small part of the turnover of the catering services, I do not consider the fee to have been anything other than a figure essentially carried over from the 1998 Agreement permitting Aramark a slightly larger share in the profits expected under the 2001 Agreement: it was not a true management fee.  
97.	In every respect other than those with which I have specifically dealt, I accept the case advanced by Mr Puzey, and thus reject that put forward by Mr Hill.  
98.	Looking at the arrangements between the parties under the 2001 Agreement as a whole, i.e. applying a proper analysis of their relationship as suggested in the cases, and in particular its substance, I accept Mr Puzey’s submission that that agreement did constitute a dramatic shift in the situation.  Aramark was made directly responsible for the supplies it was making, not to the AEEA, but to the staff at the US Embassy.  The operation was substantially, if not wholly, in its own hands.  Such influence, I should hesitate to call it control, as the AEEA retained over the direction of the catering operation was insufficient to render Aramark its agent in the provision of the catering service at the US Embassy. 
99.	In my judgment, under the 2001 Agreement, Aramark ceased to supply catering services as agent of the AEEA; it thereafter supplied them as principal in its own right.  It follows that I dismiss its appeal.  I make no direction as to costs. 

DAVID DEMACK
CHAIRMAN
Release Date: 28 December 2007
MAN/05/0605 and 0774

THE SCHEDULE
The 1998 Agreement

Article 1:   	Services to be Performed 
A.	Aramark shall furnish personnel, materials and equipment, except as provided by the AEEA, necessary for the performance of the services described by the terms of this Concessionaire Agreement and appendices attached hereto.  These services shall include but not be limited to those described in Appendix A of the Agreement. 

Article IIIA
A.	Aramark will act as Agent to provide Management Services on behalf of the AEEA.  Aramark will identify and account for VAT on any relevant sales.  If such sales exceed the limit specified by H M Customs and Excise then Aramark will organise VAT registration on behalf of the AEEA and administer the necessary payments.

Article IV D
1.	Provide all areas and suitable access thereto, heavy and light equipment as detailed in Appendix H, water, waste disposal and ventilation for use in the provided services, together with office facilities for the use of Aramark management staff.

Article V(B)
Trading accounts will cover all Reimbursable Costs incurred by Aramark defined as:
1.	Direct costs incurred by Aramark directly attributable to the provided services.  These will include but not limited to the costs of all consumables consumed in the Trading Period as invoiced by the Aramark nominated suppliers.  Labour expenses for permanent and relief staff including wages, sick pay, and associated payment, National Insurance, employer’s pension contributions, life assurance, recruitment, redundancy and termination payments where appropriate and any payment made in accordance with statutory requirements.  Cost of protective clothing, equipment replacement and rentals, advertising for and cost of replacement or agency staff, telephone charges, postage, laundry, uniform hire and sundry expenditure incurred in the Trading Period as invoiced by the Aramark nominated suppliers or in response to changing Acts of Parliament, Regulations, Orders, Bye Laws and Notices relating to the services.
2.	General and administrative expense incurred by Aramark at the regional and corporate level for providing financial reporting, legal, tax and audit services and other basic administrative support including but not limited to payroll administration and general insurance.  
3.	Allocated charges contributing to the cost of maintaining services to client locations which are reasonably allocable by Aramark to this Agreement including but not limited to training and computer resources.
4.	Management Fee to generate income for Aramark based upon the provision of a maximum 3 accounts, invoicing on a 4/4/5 basis with the manual bookkeeping system and assuming any payments that become due within stated payment terms of 14 days of invoice date. 

Article V(D)
The Fixed Management fee of £12500 will be reviewed annually on the anniversary of this Agreement.

Article XVI
A.	This Concessionaire Agreement constitutes the entire agreement between the parties.  No amendments or modifications to this Concessionaire Agreement shall be given force or effect unless such agreement is executed in writing and signed by the parties hereto.

Article XVII:  Period of Performance
A.	The period of performance under which this Concessionaire Agreement shall be performed shall commence on 5th January 1998, and shall expire on 4th January 2003.  The Period of Performance may be extended for additional periods for time by the mutual agreement of the parties. 

Appendix A: 	Schedule of Services

ARAMARK Plc shall be retained as exclusive service provider for the following services.

Staff Cafeteria

Breakfast – Monday to Friday 0730 – 0951 [0915] hrs
A selection of hot and cold breakfast items 

Coffee Time - Monday to Friday 0915 to 1130hrs
A selection of hot and cold beverages and snack items

Lunch - Monday to Friday 1130 – 1415hrs
A selection of at least 3 hot main items, extensive salad bar, desserts, beverages and deli-bar.

West One Grill
Lunchtime - Monday to Friday 1200 – 14hrs
A selection of hot and cold items cooked to order and a full bar service.

Afternoon - Monday to Friday 1400 – 1730hrs
Afternoon tea and coffee service.

Evenings - Monday to Friday 1800 – 1930 (2030 close) 
A selection of hot and cold items cooked to order and a full bar service. 

In addition to the above, ARAMARK will act as the preferred supplier for Party Catering as follows: 

Party Catering

The provision of a full conference and banqueting service available to all Embassy employees and bona fide guests and American Corporate customers as detailed by the US Government.

Appendix I:	Management Fee Structure
The AEEA will pay ARAMARK for the provision of services as outlined in Appendix A.

The income to ARAMARK will be generated in 3 ways.

1.	MANAGEMENT FEE
A fixed Management Fee will be charged for each week of the operation.  The fee will be £12,500 for year 1, then rise by 7% each year thereafter.

2.	INCENTIVE FEE
An incentive fee calculated as a percentage of total sales will be changed [charged] to the accounted.

The following matrix details the Incentive Fee:

(excl. VAT) Sales		Incentive %

0 - £300,000			2.5%
£300,001 - £500,000		4.5%
£500,001 - £600,000		   6%
£600,000 and over	 	   9%

3.	QUALITY COMMISSION
A fee linked to quality performance will be awarded in the last operating period of each budget year.  This commission is set at a maximum of £5,400 for operating year 1.  The enclosed scheme details the commission.

The 2001 Agreement

Article 1 – Services to be Performed
1(A)(1)	Aramark shall provide professional food and beverage service at the cafeteria and the restaurant (called the West One Grill).  This service includes:

(a)	Purchasing, receiving, preparing, and serving food and beverages.
(b)	Preparing and producing menus, advertisements, and other information for customers
(c)	Cleaning facilities and equipment as noted in appendix 2.
(d)	Operating the cafeteria and West One Grill during hours to be agreed by AEEA and Aramark.

1(A)(2)	Aramark shall provide catering (also known as hospitality) service in the chancery.  This service includes:
(a)	Negotiating with organisations within the chancery or outside parties (hereinafter called the catering client) to establish the date, time, menu, number of serving staff, number and type of specialised equipment or supplies, and type of service, i.e. a reception with drinks and light hors d’oeuvres, a sit-down dinner, etc., to be provided at catered events 
(b)	Preparing and delivering to the ordering organisation pro-forma invoices for each event including a recitation of the items noted in (a) above and the overall price for the event.
(c)	Notify each ordering organisation that 50 per cent of the agreed upon price must be paid 15 calendar days before the event and that the remaining 50 per cent must be paid two business days prior to the event.  Aramark agrees to enforce this provision and will be solely responsible for uncollectible amounts in the event that it is not adhered to.
•	AEEA reserves the right to waive this requirement at its discretion and will be solely responsible for any uncollectible amounts arising from its waiver
•	Purchasing, receiving, preparing, and serving food and beverages as agreed with the catering client 
•	Acquiring, receiving and returning specialised equipment that must be used for any event
•	Preparing facilities within the chancery for the type of service agreed to with the catering client 
•	Cleaning facilities and equipment as noted in appendix 2. 

1(A)(3)(a) 	Aramark shall perform the services required by the terms and condition of this contract in accordance with procedures approved by the authorised representative of AEEA.  AEEA may from time to time issue instructions to the contractor on the schedule, location, and operation of the services to be performed under this contract.  Aramark will provide AEEA with projected costs of fulfilling those instructions prior to commencement.

Article II – Aramark Personnel
A.	Aramark shall supply competent personnel with whom it has a directly hired or contractual relationship.  Prior to the time when an individual is assigned to work under this concessionaire agreement, Aramark shall furnish AEEA with the name and qualifications of such individual.  No individual may commence work under this contract without the express approval of AEEA. 

Article III – Responsibilities of Aramark 
A.	Aramark will provide professional food service management as provided in this agreement.  Aramark will exercise its professional expertise in the food service industry to provide food services to AEEA.  Should conditions within the chancery of the American Embassy make that impossible, in Aramark’s judgment, Aramark will, as soon as practicable, advise AEEA and submit recommendations in writing to correct the situation. 

D.	If the local law or decree requires that one or both parties to this contract register it with the designated authorities to ensure compliance with such law or decrees, the entire burden for such registration shall rest with Aramark.  Any local or other taxes which may be assessed against this contract shall be payable by Aramark.  Aramark shall maintain and record relevant documentation of compliance with local law and payments to local authorities.

Article IV – Responsibilities of AEEA
C.	AEEA will at its own cost:
1.	Provide all areas and suitable access thereto, heavy and light equipment, as detailed in appendix 1, water, waste disposal, and ventilation for use in the provided services, together with office facilities for the use of Aramark management staff.
2.	Carry out all cleaning of the premises and equipment as provided in appendix 2.

Article VI – Exclusivity of Aramark as a Service Provider
A. 	AEEA grants to Aramark exclusive rights as a food, beverage, and catering service provider within the chancery except as noted below.

B.	AEEA retains the right to install food and beverage vending machines as it deems appropriate. 

C.	AEEA’s authority to grant exclusive rights to Aramark is dependent on its agreement with the Embassy of the United States of America (hereinafter called the Embassy).  That agreement provides that AEEA may have exclusive rights to food, beverage and catering service except when the Embassy determines that the presence of American food, beverage or catering serves are an integral part of a program or event designed to highlight American companies.  This would typically include, but is not limited to, events or programs associated with the American Independence Day, American elections, or food, beverage, or catering service trade promotions.   

Article VII – Compensation
A.	Aramark will receive a management fee of £12,000 per annum, payable in monthly instalments of £1,000 regardless of the net income from operations.  All remaining net income from operations over the £12,000 will be divided evenly between the two parties.  Aramark will pay AEEA its portion of the net income at the end of March, June, September, and December following execution of this agreement. 

Article VIII – Prior Liabilities
A.	Aramark agrees to waive management fees of £45,796.38 owed to it for the period between October 1, 1998 and October 31, 1999. 

B.	Notwithstanding the provisions of Article VII, Aramark and AEEA agree that all net income earned by either party under the prior agreement after October 31, 1999, plus any management fees, a total of £49,600 will be applied to reducing the amount of £102,665.81, which represents the total owed by AEEA to Aramark, except as noted in sections A and D of this article.  

C.	Notwithstanding the provisions of Article VII, Aramark and AEEA agree that all net income earned by either party during the term of this agreement, except for Aramark’s £12,000 management fee and £2,000 payable annually in December to AEEA, shall be applied against the amount owed as noted in section B of this article.

D.	AEEA agrees to pay the £30,000 debt due to Aramark under the prior agreement within four months of the signing of this agreement and also to pay interest at the rate of £84 per month from the date funds were made available to AEEA until the date final payment is rendered to Aramark. 

Article X – Management of Property
A.	AEEA shall furnish all equipment, materials and supplies necessary to the performance of this concessionaire agreement except as noted in appendix 1.  Title to such property shall remain vested in AEEA.

B.	Aramark agrees to ensure that its employees use property furnished by AEEA only for such purposes, and in such a manner, as shall be acceptable to AEEA.  

C. 	Aramark agrees to maintain, protect and store property furnished to it by AEEA in accordance with health and hygiene regulations of the United Kingdom.  

D.	Upon termination of this concessionaire agreement all property furnished to Aramark by AEEA shall be returned in the same state it was originally given, on commencement of this Agreement, fair wear and tear and attrition excepted. 

E.	Aramark agrees to repair or replace AEEA or Embassy property lost or damaged through the negligence of its employees and agrees to bear the costs of such repair or replacement.  In the event of such damage or loss, Aramark shall notify AEEA and AEEA shall direct Aramark to repair, or in agreement with AEEA to itself replace the damaged or lost property.    

Article XII – Inspections and Reports
A.	AEEA or its designated representative shall have the rights to inspect, in such manner and at reasonable times as it deems appropriate, all activities of Aramark arising in the course of Aramark undertakings under this concessionaire agreement.  Aramark shall be responsible for complying with the recommendations of such inspections and shall take prompt action to remedy any deficiencies noted in such inspections.  Aramark will advise AEEA of the cost associated with complying with such recommendations prior to implementation.  

B.	Aramark agrees to institute a periodic inspection schedule to ascertain that all services required by this concessionaire agreement are being performed in accordance with its terms.  Any deficiencies or substandard conditions identified in such inspections shall be promptly corrected and improved, and any conditions beyond responsibility of Aramark shall be brought to the attention of AEEA for appropriate disposition.  

C.	At the request of AEEA, Aramark shall prepare written reports summarising inspection findings, including deficiencies noted, irregularities encountered, repairs or services needed, improvements recommended, or corrective actions completed.  The subject of such written reports need not be limited to inspection results and may, at the discretion of AEEA include any matter to the services under this concessionaire agreement.  Aramark shall sign each report and submit each, in duplicate, to AEEA.  

Article XIII – Inspections and Accounts
A.	Aramark shall maintain a separate and distinct set of accounts, records, documents, and other evidence sufficient to identify and verify all costs incurred, and the receipt, use and disposition of all AEEA / Embassy property provided to Aramark under this concessionaire agreement.  This system of accounts shall be consistent with methods and procedures approved by AEEA.  

B.	AEEA, through its designated representatives, shall have the right to examine, review and audit any and all records of the accounts related to this concessionaire agreement Aramark shall retain its books and records pertaining to this concessionaire agreement for a period of at least three years after the stated period of performance.  

C.	Aramark will render to AEEA a monthly accounting of income and expenses within 20 calendar days of the end of each month.  Aramark will make site manager available to members of the board of directors of AEEA monthly to review the prior month’s financial results.  The Aramark management team will not be required to spend more than two hours per month addressing the full board of directors of AEEA.

Article XVIII – Inspections and Accounts
A.	Aramark shall maintain a separate and distinct set of accounts, records, documents and other evidence sufficient to identify and verify all costs incurred, and the receipt, use and disposition of all AEEA / Embassy property provided to Aramark under this concessionaire agreement.  This system of accounts shall be consistent with methods and procedures approved by AEEA.

B.	AEEA, through its designated representatives, shall have the right to examine, review and audit any and all records of the accounts related to this concessionaire agreement Aramark shall retain its books and records pertaining to this concessionaire agreement for a period of at least three years after the stated period of performance.

C.	Aramark will render to AEEA a monthly accounting of income and expenses within 20 calendar days of the end of each month.  Aramark will make site manager available to members of the board of directors of AEEA monthly to review the prior month’s financial results.  The Aramark management team will not be required to spend more than two hours per month addressing the full board of directors of AEEA.