Mercy Global Consult Ltd ((in Liquidation)) v Mr Abayomi Adegbuyi-Jackson
| Jurisdiction | England & Wales |
| Judge | Mr Justice Richards |
| Judgment Date | 31 March 2023 |
| Neutral Citation | [2023] EWHC 749 (Ch) |
| Docket Number | Case No: BL-2021-000121 |
| Court | Chancery Division |
[2023] EWHC 749 (Ch)
Mr Justice Richards
Case No: BL-2021-000121
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST
Rolls Building
Fetter Lane
London, EC4A 1NL
Andrew Hitchmough KC and Clara Johnson (instructed by Wedlake Bell LLP) for the Claimant
Robert Venables KC and Juliette Levy (instructed by Estate & Corporate Solicitors) for the First Defendant
Juliette Levy (instructed by Estate & Corporate Solicitors) for the Third, Fourth, Sixth to Eleventh and Thirteenth to Fifteenth Defendants
The other Defendants did not appear and were not represented.
Hearing dates: 16 to 17 March 2023
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This judgment was handed down remotely at 10am on 31 March 2023 by circulation to the parties or their representatives by email and by release to the National Archives.
This is my judgment on two applications:
i) the applications (the “Amendment Application”) of D1, D7 and D8 (the “Applicants”) to amend their filed Defences to include a defence (the “VAT Defence”) that the claimant company (“Mercy”) made supplies that were exempt from VAT by virtue of Items 1 and/or 4 of Group 7 of Schedule 9 to the Value Added Tax Act 1994 (“ VATA”); and
ii) the “Preliminary Issue Application” that the VAT Defence be tried as a preliminary issue. It is agreed that the Preliminary Issue Application does not arise unless the Amendment Application is allowed.
Other Defendants wish to adopt the VAT Defence. For various reasons not material to this judgment, they do not need any permission to amend existing pleadings in order to do so.
BACKGROUND TO THE APPLICATIONS
Mercy was incorporated in 2011. It employed a number of employees who I will describe as “healthcare professionals”, recognising that this is both a broad, and therefore somewhat imprecise, term and also that it is something of a simplification since not all of Mercy's employees were healthcare professionals.
At all material times, D1 was Mercy's sole shareholder. The Applicants assert that until it went into liquidation, Mercy's business involved the following steps and contractual arrangements. These facts are not necessarily agreed but I will assume them as true for the purposes of this judgment.
i) Mercy engaged healthcare professionals such as doctors and nurses as its employees and entered into contracts of service with those employees.
ii) Mercy seconded the services of its employees to recruitment agencies (“Secondees”) and had a contractual relationship with those Secondees.
iii) The Secondees in turn sub-seconded the services of Mercy's employees to “End Users”, in most cases an NHS Trust. The Secondees had a contractual relationship with these End Users.
iv) When sub-seconded to End Users, Mercy's employees provided services consisting of “medical care” or “care or medical or surgical treatment” (terms that have particular resonance for VAT purposes as will be seen below) by acting as healthcare professionals.
v) Mercy did not control the services provided by healthcare professionals that it employed. Thus, when providing their “medical care” or “care or medical or surgical treatment”, Mercy's employees discharged their professional duties within the framework set by the End Users.
vi) Mercy's secondment of employees to Secondees and Secondees' sub-secondments to End Users were on a “back-to-back” basis so that, in particular:
a) Mercy would not second an employee to a Secondee unless the Secondee would in turn sub-second the employee to an End User.
b) Mercy seconded its employees to Secondees as healthcare professionals. Secondees, in turn sub-seconded the employees to End Users as healthcare professionals. End Users did not require Mercy's employees to perform duties other than those of a healthcare professional.
vii) Mercy charged Secondees a fee for the provision of a particular employee. Mercy would also charge a “commission” to its employees consisting of a flat-rate weekly amount which Mercy justified by the fact that it provided certain administrative and payroll services.
viii) On receipt of a fee from a Secondee, Mercy would deduct PAYE and employees' national insurance contributions (“NIC”), would retain its commission, and would pay the balance over to the employee concerned.
At the time it was carrying out this business, Mercy thought (the Applicants say mistakenly) that at least some of the supplies that it made described in paragraphs 4 above were standard-rated for VAT purposes, except to the extent that the Nursing Agency Concession (described below) applied.
Mercy entered into “self-billing arrangements” with some Secondees under which those Secondees prepared invoices in the name of, and on behalf of, Mercy and then sent those self-billed invoices to Mercy, often with payment. Therefore, to the extent that invoices were prepared at the time that showed Mercy as making standard-rated supplies to Secondees, those invoices were in many cases “self-billed” invoices prepared by the Secondees themselves, rather than traditional VAT invoices that Mercy itself prepared and sent to Secondees.
HMRC carried out an investigation into Mercy's activities which culminated in it making assessments (the “Assessments”) on Mercy for under-declared VAT totalling some £21 million.
In these proceedings, Mercy alleges that this under-declared VAT was the subject of a significant VAT fraud perpetrated between at least 2015 and 2020, through the agency of D1. The VAT fraud is said to consist simply of Mercy charging Secondees VAT and, save for small sums, not accounting to HMRC for that VAT, hence the under-declaration resulting in the Assessments.
Mercy alleges that the VAT was misappropriated by D1, with the assistance of D6 (D1's wife), D10 (who was the de jure director of D9 and is D1's half brother) and each of D7, D8, D9, D11, D13, D14 and D15 (the “corporate defendants”). Mercy seeks equitable compensation against D1 for fraudulent breach of duty and proprietary remedies in respect of sums he has received. It makes proprietary claims against D6 and the corporate defendants (as well as claims for equitable compensation for their dishonest assistance). Mercy also brings a claim for unlawful means conspiracy against D1 and D6.
By the VAT Defence, the Applicants seek to establish that Mercy's supplies were exempt from VAT by virtue of Items 1 and/or 4 of Group 7 of Schedule 9 of VATA. Accordingly, they seek to argue that Mercy does not owe HMRC the £21 million claimed by the Assessments. In the absence of any obligation to pay VAT to HMRC, the Applicants argue that there can be no VAT fraud of the kind that Mercy alleges.
THE AMENDMENT APPLICATION
The test to be applied in deciding whether to give permission
It is common ground that the Applicants need the permission of the court under CPR 17.1(b) in order to amend their Defence.
I will not seek to provide a comprehensive list of factors that need to be taken into account whenever a litigant asks the court for permission to amend a statement of case. In the circumstances of this case, the following factors are relevant:
i) I am asked to exercise a judicial discretion given to me under CPR. It follows that the overriding objective is of central importance. At heart, I need to exercise my discretion judicially, striking a balance between injustice to the Applicants if the amendment is refused and injustice to other parties to the litigation, and litigants in general, if the amendment is permitted.
ii) The “lateness” or otherwise of the amendments is not a consideration in this case since Mercy does not seek to argue that the amendments proposed are “late” in any sense that is relevant to the Amendment Application.
iii) It is appropriate to consider whether the proposed amendments either i) introduce a new defence or, alternatively, ii) provide amplification of an existing “line” of defence or further particulars of an existing pleaded defence (see the judgment of HHJ Eyre QC (as he then was) in Scott v Singh [2020] EWHC 1714 (Comm) at [19] and [21]. If the amendments fall within category i), I should consider whether the new defence pleaded has a reasonable prospect of success. However, if the amendments fall into category ii), the defence is going to be considered at trial anyway even if the amendment is not permitted. Therefore, in that case a consideration of prospects of success will provide less of a guide to the proper exercise of my discretion since that is a matter best left to trial.
iv) To the extent that a consideration of prospects of success is relevant, the correct approach is to proceed by analogy to the test that is applied on an application for summary judgment (see Kawasaki Kisen Kaisha Ltd v James Kemball Ltd [2021] EWCA Civ 33 at [16] to 17] per Popplewell LJ). Moreover, if as Mercy submits, there is no realistic prospect of the VAT Defence succeeding as a matter of law in the light of the judgment of the Court of Appeal in Mainpay Ltd v HMRC [2023] STC 30 (“ Mainpay”), then I would be under a duty to refuse to permit the amendments that constitute the VAT...
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Mercy Global Consult Ltd ((in Liquidation)) v Abayomi Adegbuyi-Jackson
...ON APPEAL FROM THE HIGH COURT OF JUSTICE, BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES, BUSINESS LIST (ChD) Mr Justice Richards [2023] EWHC 749 (Ch) Royal Courts of Justice Strand, London, WC2A 2LL Richard Venables KC and Juliette Levy (instructed by Estate & Corporate Solicitors) for ......