Mercy Global Consult Limited (in liquidation) v Abayomi Adegbuyi-Jackson & Ors

For VAT purposes, a supply of staff is conceptually distinct from a supply of the services performed by those staff. That distinction remains relevant when considering the health and welfare exemptions in Group 7 of Schedule 9 to the Value Added Tax Act 1994. A Court of Appeal decision remains binding where the relevant proposition was considered and decided, even if an underlying assumption was not argued. The narrow exception for a merely assumed proposition applies only in the most obvious cases. Nor can the Court of Appeal disregard precedent merely because earlier reasoning is said to be wrong; any error must be truly manifest.

The defendants appealed from Richards J’s refusal to permit amendments introducing a VAT defence and an application to try that defence as a preliminary issue: [2023] EWHC 749 (Ch). The defence asserted that the claimant’s supplies of healthcare professionals were exempt under Items 1 and 4 of Group 7 of Schedule 9 to the Value Added Tax Act 1994.

The judge held that the defence had no real prospect of success because it was precluded by the Court of Appeal’s decision in Mainpay Ltd v Revenue and Customs Commissioners. The defendants argued that the relevant proposition in Mainpay was not binding because it rested on an unargued assumption, or was manifestly wrong. The central issue was whether Mainpay bound the court and precluded the proposed defence.

Arnold LJ gave the judgment of the court, with whom Phillips and Underhill LJJ agreed. The appeal was dismissed.

1. VAT distinction. The Court of Appeal’s decision in Mainpay Ltd v Revenue and Customs Commissioners [2022] EWCA Civ 1620 established a binding distinction between a supply of staff and a supply of the services performed by those staff. The distinction concerns the character of the supply and is not dependent upon the precise breadth of the domestic exemptions in Group 7 of Schedule 9 to the Value Added Tax Act 1994.
2. Assumed propositions. Regina (Kadhim) v Brent London Borough Council Housing Benefit Review Board [2001] QB 955 recognises a narrow exception where a proposition forming part of an earlier ratio was merely assumed and was not argued or considered. That exception must be applied only in the most obvious cases. Mainpay had considered and decided the distinction between staff supplies and staff-service supplies. The fact that the parties and the court had assumed that the domestic exemptions had materially the same scope as the corresponding provisions of Council Directive 2006/112/EC did not remove the binding effect of the decided proposition.
3. Manifest error. Under Morelle Ltd v Wakeling [1955] 2 QB 379, a departure from precedent on per incuriam grounds requires a truly manifest slip or error, subject to the usual exceptional categories involving overlooked legislation or binding authority. The criticisms of Mainpay did not meet that threshold. Reed Personnel Services v CCE [1995] STC 588 did not demonstrate any error in Mainpay’s treatment of the distinction.
4. The VAT defence was therefore precluded by Mainpay. The refusal to amend the defences was upheld, and the application for a preliminary issue trial was also refused.

• Court of Appeal (Civil Division) — Appeal dismissed; the refusal to permit amendment and to order a preliminary issue trial was upheld: [2023] EWCA Civ 1073.
• High Court of Justice, Business and Property Courts, Business List (ChD) — Richards J refused permission to amend the defences and refused the application for a preliminary issue trial: [2023] EWHC 749 (Ch).