Liability in mediation—who is liable for damage?
In brief
- An intermediary may be liable for damage, or the risk of damage, resulting from a breach of duties of care and disclosure.
- In this case, there was a risk that De Vrij would receive an additional tax assessment due to a 'fringe benefit'. De Vrij claimed indemnity from SEG for that risk; SEG considered this unjustified.
- The Court of Appeal upheld that claim, and the Attorney General has stated that the decision should remain in force on further appeal.
What if an intermediary makes mistakes that cause their client to (possibly) suffer damage, such as an additional tax assessment? This was the dispute between De Vrij and his agent at the time, SEG.
The additional tax assessment: what was the situation?
When Stefan de Vrij signed a contract with Internazionale in 2018, his transfer was managed by the agent SEG. The club paid SEG millions in commission for its role in arranging the transfer. This is fiscally relevant. According to the Italian tax authorities, such an arrangement can be seen as a fringe benefit: a benefit paid by the club that actually (partly) accrues to the player. This benefit can then be taxed to the player, even if he does not receive the amount directly.
De Vrij argues that he would never have agreed to that risk if he had been fully informed about SEG’s commission position. As this could expose him to the risk of an additional tax assessment, he claimed indemnity from SEG in these proceedings: if the tax authorities did impose an additional tax assessment in the future, SEG would have to compensate him for that damage.
What did the Court decide?
The Court of Appeal ruled that De Vrij did have an interest in the indemnity. That ruling was based on the following considerations:
- A tax assessment had previously been imposed for a similar arrangement (when SEG was acting on behalf of Lazio), which, according to the Court, showed that the risk was real.
- Although Internazionale later issued an indemnity, the Court could not rule out that this indemnity would provide insufficient coverage for future assessments. SEG could therefore not rely solely on the argument that De Vrij no longer had an interest in an additional indemnity.
The Court therefore ruled that SEG had to indemnify De Vrij against any future fiscal damage.
Duty of care and liability
By failing to disclose its interests, SEG had breached not only its duty of disclosure but also its duty of care as an intermediary. On appeal to the Supreme Court, SEG argues that there was no damage and therefore no liability. However, that reasoning does not hold water, because Section 7:418 (2) of the Dutch Civil Code provides for a strict penalty precisely in situations in which an intermediary violates their duty of disclosure. The intermediary is not entitled to wages and is liable for any damage resulting from the aforementioned breach. If De Vrij had been aware of the commission, he could have made different agreements with SEG about a possible additional tax assessment.
Conclusion
The case shows that the intermediary’s duty of care is far-reaching, because anyone who withholds information and does not fulfil their duty of care can be held accountable for the consequences. This even applies if that damage can only occur later, such as in the event of an additional assessment by the tax authorities.
This means that agents of players and clients of intermediaries have the right to full disclosure. And for agents and intermediaries: failing to be transparent about one’s own interests can be costly—not only in terms of reputational damage, but also in euros.
In the next and final part of this series, we will discuss the subject of statutory interest: from what point does it start to accrue in a claim for damages?
