In the case of British Airways Plc v Prosser it was found - on appeal - that a solicitor can recover VAT on a medical reporting organisation fee.
Mr Prosser - an employee of British Airways - was injured in an accident at work for which liability was admitted. Damages of just under £15,500 were agreed. British Airways Plc paid Mr Prosser’s fixed costs, but the parties were in dispute about the VAT element of the charges made by the medical reporting organisation, Absolute Medicals Limited.
The Court of Appeal, Civil Division, ruled that the District Judge had been entitled to allow the costs claimed by Mr Prosser - including the VAT - regardless of whether a medical reporting organisation, which the respondent's solicitors had commissioned to secure medical reports and records in relation to Mr Prosser’s claim, had actually been obliged to charge VAT.
British Airways Plc’s position was that VAT was not chargeable on the medical services provided because the providers were not VAT-registered, or their supplies were exempt. They pleaded that VAT should only be charged by Absolute Medicals Limited on the portion of the invoice which represented its administration fees.
The disputed amount was extremely small but there was a wider issue at stake. Firstly, District Judge Temple - sitting in Newcastle County Court - held that VAT was recoverable on the entire Absolute Medicals Limited invoice and found that it would be:
“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.”
British Airways appealed and the appeal court, in dismissing their appeal, held that the District Judge had been entitled to take the view that the sums claimed in the relevant invoices had been reasonably and proportionately incurred and were reasonable and proportionate in amount - satisfying the requirements of CPR 44.3. It was stated that it was readily comprehensible that the District Judge had not thought that it had been incumbent on the respondent's solicitors to investigate the VAT position.
Guidance was given on when VAT could be charged in cases where solicitors, instructed on personal injury claims, had used the services of a medical reporting organisation. Where the amounts in issue are more significant, it will be incumbent on solicitors representing the receiving party to make more probing enquiries about the VAT position.
