Mercy Global Consult Ltd (In Liquidation) v Abayomi Adegbuyi-Jackson & Ors

Permission to amend pleadings is a judicial discretion governed by the overriding objective. The court must distinguish a genuinely new defence from amplification of an existing defence. A new defence should normally be refused where it has no realistic prospect of success.

A proposition of law not argued before an earlier court may nevertheless bind a later court if the earlier court considered and determined it. A mere assumption does not bind. A preliminary issue should ordinarily be decisive or potentially decisive, suitable for determination on agreed facts, and capable of being tried without significant delay or disruption.

Mercy Global Consult Ltd, in liquidation, brought claims alleging that the defendants participated in a substantial VAT fraud. Certain defendants applied to amend their defences to plead that Mercy’s supplies were exempt under Items 1 and/or 4 of Group 7 of Schedule 9 to the Value Added Tax Act 1994. They also sought trial of that VAT issue as a preliminary issue.

The court had to decide whether the proposed amendments introduced a new defence, whether that defence had a realistic prospect of success in light of Mainpay Ltd v HMRC, and, if amendment were permitted, whether the VAT issue should be tried separately.

1. Amendment. The proposed VAT Defence was a new defence, not merely an amplification of the existing pleadings. The existing defence admitted that Mercy’s supplies were subject to VAT to the extent that the Nursing Agency Concession did not apply. The proposed amendments withdrew that admission and substituted a case based on statutory VAT exemptions. The court therefore had to consider prospects of success.
2. The relevant approach was analogous to summary judgment. The court refused permission to plead the statutory exemption defence because it had no realistic prospect of success in light of Mainpay Ltd v HMRC [2023] STC 30. Mainpay established a valid distinction between a supply of staff and a supply of the services performed by those staff. The mere supply of healthcare professionals who could provide medical care did not itself amount to the exempt provision of medical care. The same approach was likely to apply under Item 4. The court did not decide whether domestic law otherwise provided a wider exemption than the VAT Directive.
3. The court accepted that a proposition not argued before an earlier court may bind a later court where the earlier court considered and determined it. A mere assumption does not bind, and the exception to the strict rule of precedent must be applied with great care. Mainpay’s distinction was considered, not assumed, and formed an integral part of its reasoning.
4. The remaining amendments, including those concerning the Nursing Agency Concession and matters of clarification, could potentially be agreed. The Preliminary Issue Application therefore did not arise. Had it arisen, it would have been refused. A preliminary issue would probably not have disposed of the litigation because of the possible operation of Schedule 11 to the Value Added Tax Act 1994, and it would have caused the existing trial date to be lost.