Bolsover District Council and another v Ashfield Nominees Ltd and Others

JurisdictionEngland & Wales
JudgeLord Justice Lloyd,Lord Justice Gross,Lord Justice Laws
Judgment Date19 October 2010
Neutral Citation[2010] EWCA Civ 1129
CourtCourt of Appeal (Civil Division)
Date19 October 2010
Docket NumberCase No: A2 2010/0187

[2010] EWCA Civ 1129

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

BIRMINGHAM DISTRICT REGISTRY

His Honour Judge Cooke

Before: Lord Justice Laws

Lord Justice Lloyd

and

Lord Justice Gross

Case No: A2 2010/0187

Between
(1) Bolsover District Council
Claimants
(2) Mansfield District Council
Respondents
and
(1) Ashfield Nominees Ltd
(2) Dennis Rye Ltd
(3) East Midlands Developments Ltd
Defendants
(4) Hardwick Nominees Ltd
Appellants

David Lock (instructed by Brooks Solicitors) for the Appellants

James Morgan (instructed by Summers Nigh Law LLP) for the Respondents

Hearing date: 7 October 2010

Lord Justice Lloyd

Lord Justice Lloyd:

Introduction

1

The dispute between the parties in this appeal concerns council tax. The companies who are the appellants own a lot of houses in the areas of the two respondent councils. The councils demanded payment of council tax in the usual way. The companies did not pay the tax. The legislation governing council tax is such that a council cannot sue to recover unpaid tax. Instead it applies to the magistrates’ court for a liability order. If satisfied that the council tax is due and unpaid, the magistrates’ court must make a liability order for the unpaid amount of tax plus a sum for costs. Once a liability order has been made, a number of further enforcement options are open to the council if the tax still remains unpaid. These include attachment of earnings, charging orders, distress and, more relevantly to the present case, insolvency proceedings. A liability order is limited to amounts of council tax which became due within the period of 6 years before the application to the magistrates’ court. The question on this appeal is whether a council which has obtained a liability order and which wishes to enforce it by insolvency proceedings must do so within 6 years after the making of the order.

2

The issue arose in this way. The councils presented winding-up petitions for unpaid amounts of council tax for which they had obtained liability orders, some of which were made more than 6 years before the date of the petition – in some cases well over 6 years. The companies sought to strike the petitions out on a number of grounds, asserting that the debts were disputed. The judge held that the petitions were unobjectionable in respect of amounts of council tax which had fallen due within the 6 year period before the presentation of the petition, or for which the liability order had been made within that period. He also held that there was a genuine dispute as to amounts for which the liability order was more than 6 years before the date of the petition. He would have allowed the petitions to proceed because of the undisputed amounts. However, those amounts were then promptly paid, leaving outstanding only the amounts for which a time-based defence existed. He held that winding-up proceedings were not the right forum to resolve the time-bar issue, and therefore dismissed the petitions. The councils then started these proceedings for a declaration that the passage of more than 6 years after the making of the liability order did not prevent them from proceeding by way of a winding-up petition. The present proceedings came before the judge on 18 December 2009. He decided them in favour of the councils. He refused permission to appeal, but that was later granted by Longmore LJ.

3

We have had the benefit of full and clear written submissions from Counsel on both sides, amplified by admirably succinct oral argument. The issue turns on the application of section 9 of the Limitation Act 1980 to the statutory regime governing council tax. Section 9 applies to an action to recover “any sums recoverable by virtue of any enactment”. The essence of Mr Lock's point for the appellants is that unpaid council tax is a sum recoverable by virtue of an enactment, and that accordingly a form of proceeding to recover it which is within the scope of the word “action” must be subject to section 9. It has been held that a winding-up petition is within the meaning of the word “action” so, he says, such a petition must be presented within the relevant period of six years.

4

I agree with Judge Cooke that this is not so, for reasons which I will now explain. As well as the council tax legislation, I will have to examine some of the legislation and cases which deal or dealt with other forms of taxation within the realm of local government finance.

The legislation relating to council tax

5

Council tax is governed by the Local Government Finance Act 1992 (the 1992 Act) and regulations made under that Act. It succeeded the rather short-lived community charge, sometimes called poll tax. That itself succeeded, as regards domestic property, the very long-lived system of general rates. The latter, transformed as non-domestic rates, still applies to business and other such property. Some features of the non-domestic rating system, introduced in 1988 at the same time as the community charge, are similar to the present council tax regime.

6

Part I of the 1992 Act deals with council tax in England and Wales. Local authorities, referred to as billing authorities, are to levy and collect the tax, which is payable in respect of dwellings in their areas: section 1. Section 6 identifies the person who is to pay council tax in respect of any chargeable dwelling. Section 14 introduces various Schedules, in particular Schedule 4 dealing with recovery and enforcement. Schedule 4 paragraph 1 allows regulations to be made as regard recovery of sums which have become payable to a billing authority and have not been paid. The relevant regulations are the Council Tax (Administration and Enforcement) Regulations 1992, SI 1992/613 (the 1992 Regulations).

7

Part V of the 1992 Regulations deals with billing. It provides for demand notices to be served on each liable person for each financial year. These notices (normally) require the making of payments on account of the amount expected to be due. In the normal case the notice will be served soon after the council has decided the rate of council tax for the coming year, and before the beginning of the relevant year, which runs from 1 April. Normally it will call for payment by 10 instalments through the year. If instalments are not paid when due, the council is to serve a reminder notice on the liable person. If there is a further default in payment of instalments, the whole outstanding amount may become payable in circumstances provided for by regulation 23, the details of which do not matter for present purposes. There are also other provisions in Part V governing the date when amounts in respect of council tax are to be payable, in various circumstances.

8

Part VI of the 1992 Regulations deals with enforcement. The critical provision is regulation 34, relating to applications for a liability order. Before any such application is made the council must serve a final notice on the person against whom the application is to be made. Such a notice may be served at any time after the relevant amount has become due: regulation 33(2). Regulation 34(1) allows the council to apply to the magistrates’ court for an order where any of certain specified amounts are due but unpaid. According to paragraph 34(2) the application is made by complaint to a justice of the peace requesting the issue of a summons directed to the relevant person to appear before the court to show why he has not paid. By regulation 34(3) the normal 6 month limit for a complaint to the magistrates’ court (under section 127 of the Magistrates’ Courts Act 1980) does not apply, but no application may be instituted in respect of a sum more than 6 years after it became due. Unless the sum due and the costs reasonably incurred by the council are paid before the hearing, the magistrates’ court is to make the order if satisfied that the sum has become payable by the defendant and has not been paid. The order is to be for the sum outstanding and the council's reasonable costs.

9

If a liability order is made, it is enforceable in accordance with the 1992 Regulations, not under the Magistrates’ Courts Act 1980 generally. Provision is made for various methods of enforcement ranging from attachment of earnings and distress to commitment to prison. By regulation 49, the amount due under a liability order is deemed to be a debt for the purposes of either section 267 or section 122(1)(f) (or 221(5)(b)) of the Insolvency Act 1986, according to whether the debtor is an individual or a company. This means that inability to pay the amount due can be a ground for the presentation of a petition in bankruptcy or for winding-up as the case may be.

10

In this context it is to be noted that, if council tax is due and unpaid, it is regarded as a debt for the purposes of insolvency proceedings even if a liability order has not yet been made. Judge Cooke so held at the earlier stage of these proceedings, a conclusion which was not challenged on an earlier appeal by the companies to this court: Dennis Rye Ltd v Bolsover DC [2009] EWCA Civ 972. That is consistent with what was held to be the position as regards general rates in the Chancery Division in Re North Bucks Furniture Depositories Ltd [1939] Ch 690 and by the Court of Appeal in Re McGreavy [1950] Ch 269. I have no doubt that this is correct. It would be absurd to suggest that council tax due and unpaid was not a “debt” for the purposes of insolvency proceedings merely because a liability order had not been made. If a council taxpayer were to become bankrupt leaving council tax unpaid, the...

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