British Airways Plc v John Prosser
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Coulson,Lord Justice Lewison |
| Judgment Date | 02 April 2019 |
| Neutral Citation | [2019] EWCA Civ 547 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2018/2840 |
| Date | 02 April 2019 |
[2019] EWCA Civ 547
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COUNTY COURT AT NEWCASTLE UPON TYNE
District Judge Temple
C04NE276
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Lewison
Lord Justice Newey
and
Lord Justice Coulson
Case No: A2/2018/2840
Mr Laurent Sykes QC (instructed by Weightmans LLP) for the Appellant
Mr Steven Turner (instructed by Sintons Law) for the Respondent
Hearing date: 12 March 2019
Approved Judgment
Nowadays, solicitors instructed on personal injury claims will sometimes use a medical reporting organisation (or “MRO”) to obtain relevant medical reports and records. That was what happened here. The respondent, Mr John Prosser, had been injured at work on 26 May 2014. He instructed Sintons Law, solicitors, to act for him in a claim against the respondent, British Airways plc (“BA”), by whom he was employed. Sintons in turn commissioned Absolute Medicals Limited (“AML”), an MRO that they owned, to secure medical reports and records. Between December 2014 and June 2016, AML invoiced Sintons for a total of £1,278, £213 of which was attributable to value added tax (“VAT”). Two of the invoices expressly recorded that £30 (plus VAT) was being charged by way of “Admin Fee”, but it is common ground that an administration fee (in one case of £165, in the others of £30, plus VAT) accounted for part of each of the seven invoices. The balance of the invoices was attributable to the sums charged by the doctor, medical centre and hospitals that had provided the reports and records, together with VAT.
BA admitted liability to Mr Prosser and in September 2016 damages were agreed at £15,424.98. BA also made a payment in respect of the fixed costs to which Mr Prosser was entitled. BA took issue, however, with the sums that Mr Prosser claimed for disbursements. While, therefore, it made an interim payment on account of disbursements, it denied liability for much of the VAT included in the invoices from AML. As a result, Mr Prosser issued costs-only proceedings, pursuant to CPR 46.14, on 23 December 2016. On 8 February 2017, District Judge Temple, sitting in the County Court at Newcastle Upon Tyne, made an order for BA to pay Mr Prosser's reasonable disbursements, to be assessed if not agreed. Assessment proceedings ensued, culminating in an oral hearing before District Judge Temple on 16 July 2018.
BA's position was that AML should in fact have charged VAT only on the element of each invoice that represented its administration fee. As to the remainder, the doctors, medical centre and hospitals would not have levied VAT (because the providers were not VAT-registered or their supplies were exempt), and AML (so it was argued) should not have done so either. In the circumstances, BA should not be required to meet the excess (viz. £189).
District Judge Temple did not accept BA's contentions. She said that, if she had to make a decision on the point, it was her view that VAT was properly chargeable on the totality of AML's invoices and not merely AML's administration fees. She considered that AML “is not simply a direct agent or post-box … for the solicitor/client” but “provides services whereby it obtains records and reports and passes those back on to the solicitor” (paragraph 18 of the judgment). However, she saw the question that she had to ask as being, “was it unreasonable and disproportionate for the claimant's solicitors to incur these fees and was it unreasonable and disproportionate for the claimant's solicitors not to investigate and ask questions of their supplier in relation to the VAT status” (paragraph 22). The District Judge went on:
“My view is that it would have been entirely unreasonable and disproportionate to expect the claimant's solicitors to start questioning the VAT status of the invoice that was provided to them by the medical agency. That, in my view, is going way too far on the expectations that are to be placed on a claimant's solicitor.
It is not, under a standard basis of assessment of costs, the job of a claimant solicitor to take every step necessary or possible to investigate whether or not a cost has been properly incurred. The issue is whether or not the claimant's solicitors have acted reasonably and proportionately, and whether or not those costs have been reasonably and properly incurred. My view is that it was perfectly reasonable and proportionate for the claimant's solicitors to accept the bill as it was presented to it on the face of it, including the VAT that was charged. It is not for the claimant's solicitors to start investigating with their supplier and with the tax authorities, whether or not the supplier should or should not be charging VAT on particular aspects of their bill. That is a matter between the supplier and the taxman.”
On 29 October 2018, His Honour Judge Freedman, sitting in the County Court at Newcastle Upon Tyne, granted BA permission to appeal against District Judge Temple's decision and ordered that the appeal be transferred to the Court of Appeal on the ground that it raised an important point of principle or practice. While the amount in dispute in this particular case is of course very small, the issue to which it gives rise is of far wider significance to insurers: Mr Simon Gallimore, Vice President with American International Group, Inc., has explained in a witness statement that a decision on the point “may be applied to many thousands of cases”. In the circumstances, Judge Freedman directed BA to bear both sides' costs of this appeal.
In January of this year, BA's solicitors informed HM Revenue & Customs (“HMRC”) of the forthcoming appeal, but in February HMRC confirmed that they would not be applying to join the proceedings.
The parties' contentions give rise to two issues:
i) Was AML right to charge VAT on the full amounts it was billing rather than just its administration fees?
ii) Was the District Judge entitled to allow the costs claimed on the basis that, whatever the correct VAT position, the costs had been reasonably and proportionately incurred and were reasonable and proportionate in amount?
It is convenient to address the second of these points next.
Reasonableness and proportionality
In general, the only costs that a successful claimant can recover in a claim under the Pre-Action Protocol for Low Value Personal Injury (Employers' Liability and Public Liability) Claims (such as Mr Prosser's was) are the fixed costs laid down by Part 45 of the CPR and “disbursements in accordance with rule 45.29I”. Under CPR 45.29I, such costs can include “the cost of obtaining medical records and expert medical reports as provided for in the relevant Protocol” (see CPR 45.29I(2)(a)). However, CPR 44.3 applies. Where, therefore, costs are being assessed on the standard basis (as was the case with Mr Prosser), the Court will “not … allow costs which have been unreasonably incurred or are unreasonable in amount”, will “only allow costs which are proportionate to the matters in issue” and will “resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party” (see CPR 44.3(1) and (2)).
Mr Laurent Sykes QC, who appeared for BA, pointed out that costs “are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them”, but are rather “given by the law as an indemnity to the person entitled to them” ( Harold v Smith (1860) 5 H & N 381, at 385, per Bramwell B). If, he argued, VAT was not in fact due on AML's invoices except as regards its administration fees, Mr Prosser could recover the over-payment from AML, which, in turn, could remedy the position as between itself and HMRC by means of an adjustment in a VAT return, in accordance with HMRC's VAT Notice 700/45, dealing with “How to correct VAT errors and make adjustments or claims”. It would, Mr Sykes suggested, be contrary to principle to require BA to pay Mr Prosser an amount that he could anyway recover from AML. Mr Sykes acknowledged that, more than four years having elapsed since its first invoice was rendered, AML might now have lost any right to recover any over-payment in respect of that particular invoice, but he said that there had been ample opportunity to sort things out earlier.
As, however, was pointed out by Mr Steven Turner, who appeared for Mr Prosser, District Judge Temple's decision served to indemnify Mr Prosser in respect of actual outlay. AML's invoices had been paid in full, and AML will doubtless have accounted to HMRC for the VAT charged in the invoices. That being so, there can be no question of Mr Prosser, Sintons or AML receiving a “bonus”. The total amount of each invoice, including the VAT component, represented a cost to Mr Prosser.
The question then arises whether the sums claimed in the invoices were “reasonably and proportionately incurred” and “reasonable and proportionate in amount”, so as to satisfy the requirements of CPR 44.3. District Judge Temple considered that they were, and it seems to me that she was amply entitled to take that view. This was a low value claim in which Sintons could recover no more than the relatively modest fixed costs prescribed by CPR 45.29E by way of remuneration. The amount at stake with which Mr Prosser should, on BA's case, have taken issue was, moreover, tiny: just £189. On top of that, whether or not Sintons were aware of them at the time, there were seemingly authoritative materials appearing to confirm that VAT was chargeable. In a letter to Deloitte & Touche LLP dated 29 April 2008, HMRC stated that a claim handling service provider (or “CHSP”) “must account for VAT on the full amount charged to their client” so...
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