Moller & Ors v One Touch Solution Ltd & Anor

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (KB)

This judgment was handed down remotely at 3pm on 6 January 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

HIS HONOUR JUDGE PEARCE

1. At a hearing on 10 December 2025, I dealt with various applications and issues in this claim. One matter was the assessment of the costs due to the First Defendant in respect of the amendment of its defence (following amendment of the Particulars of Claim by the Claimants). This amendment was made pursuant to the order of Dias J dated 30 July 2024. In consequence of the order permitting amendment, the judge had ordered that the Claimants pay the reasonable costs of the Amended Defence to be assessed if not agreed.
2. The parties were unable to agree the amount of those costs and they were subject to summary assessment at the hearing on 10 December 2025. One of the issues between the parties was as to the recovery of VAT on costs. I assessed the costs net of VAT in the sum of �25,000 and directed that the issue of the recovery of VAT on costs be the subject of written submissions from the parties and subsequent determination without a hearing.
3. The Claimants filed written submissions dated 17 December 2025 drafted by Mr Simon Johnson of Counsel, together with a supplemental bundle of documents. The Defendants' submissions were made by way of Solicitors' letter of the same date with accompanying documentation.
4. It is common ground that the Second Defendant is joined in this action pursuant to the Third Parties (Rights Against Insurers) Act 2010, in consequence of the fact that it is the relevant insurer of the First Defendant, a company that entered creditors' voluntary liquidation on 28 March 2024. The order granting permission to amend the Particulars of Claim with consequential amendment to the Defence post-dates this and, as the Defendants pointed out in its letter of 15 January 2025, the liability on the part of the First Defendant for the cost of work for which the VAT claim is made arose after the company was placed into liquidation. The Defendants contend that "plainly in such circumstances [the First Defendant] can neither pay nor recover VAT."
5. Equally, the Defendants contend that the Second Defendant cannot recover the VAT paid (even though it paid it) because the tax relates to a legal service provided to the insured party, that is to say the First Defendant. The Second Defendant cites Friston on Costs (4^th Ed), at [55.37] in support of this proposition.

"It is the ability of the receiving party themselves to recover VAT as input tax that is relevant, not the ability of any insurer or funder that may be funding the litigation. In particular, the fact that an insurer has conducted a subrogated claim in the name of an insured or that it provided an indemnity is irrelevant for the purposes of assessing the paying party's liability for VAT. If the insured is unable to claim input tax for any reason, the legal representative's invoice may be sent directly to the insurer, but this must not be treated as a VAT invoice that gives rise to a right on the part of the insurer to claim input tax. Put otherwise, input tax cannot be claimed by the back door. Where, however, the insured is able to claim input tax, then a VAT invoice may be sent directly to the insured, with the insurer paying the non-VAT element."

The learned authors of Friston cite The Law Society's Vat Guide (London Law Society, 1996) in partial support of this proposition.

6. The Claimants contend that the mere fact of the liquidation does not prevent the First Defendant's estate from claiming the recovery of VAT. This is apparent from Regulation 111(5) of the Value Added Tax Regulations 1995 which provides:

"�if a person who has been, but is no longer, a taxable person makes a claim in such manner and supported by such evidence as the Commissioners may require, they may pay to him the amount of any VAT on the supply of services to him after the date with effect from which he ceased to be, or to be required to be, registered and which was attributable to any taxable supply made by him in the course or furtherance of any business carried on by him when he was, or was required to be, registered."

(This right is subject to a back stop of 4 years from the date of the supply of the relevant service. This back stop clearly does not apply here).

7. I accept the proposition, supported by the passage from Friston on Costs at [55.37], that the relevant consideration in determining the recovery of VAT is the ability of the insured party (here the First Defendant) rather than the insurer (the Second Defendant) to recover VAT in respect of the relevant services. However, Regulation 111(5) of the Value Added Tax Regulations 1995 provides clear support for the recovery of VAT by the estate of the First Defendant, through the liquidators, even if the First Defendant itself is no longer registered for VAT. The Defendants assertion that the First Defendant cannot recover VAT because of its liquidation flies in the face of this Regulation and is unexplained.
8. The Court can rely on the liquidators of the First Defendant to discharge their duties by filing appropriate VAT returns to recover the sum. It follows that, on a true reading of the relevant VAT law, the First Defendant's estate can recover VAT on the services to which the assessed costs relates and, correspondingly, neither the First nor the Second Defendant has suffered a loss in that amount that can be included in its costs statement.
9. The Claimants seek their costs of the preparation of submissions on the VAT issue in the sum of �1,000 (excluding VAT). As the Claimants point out, the issue of the recovery of VAT was dealt with in correspondence between the parties. Each side had taken the stance advanced before the court and the Claimants' argument has proved successful. The Claimants contend that the Defendant could and should have provided a clear answer to the issue at the hearing on 10 December 2025, which would have avoided the need for further expense to be incurred.
10. I have not heard submissions from the Defendants on the issue of these costs. However, on the face of it:

10.1. The Claimants are the clear winners on the issue before the court and have a powerful argument that the unsuccessful Defendants should pay their costs, applying the usual principle under CPR Part 44;

10.2. The costs sought are reasonable and proportionate, even applying the resolution of any doubt as to this issue in favour of the Defendants as the paying party.

11. I will accordingly make a costs order in the Claimants' favour in the amount sought, but subject to a right on the part of the Defendants to seek to set aside or vary that order by written application, with a corresponding right for the Claimants to respond to such an application in writing, and for the matter to be determined without a hearing. The parties may seek their costs of making, or, as the case may be, replying to any such application though should bear in mind that the court would expect any submissions to be short and costs to be at a modest level.