HM Revenue and Customs v Cassells
| Jurisdiction | England & Wales |
| Judge | THE LORD CHANCELLOR |
| Judgment Date | 04 December 2008 |
| Neutral Citation | [2008] EWHC 3180 (Ch) |
| Docket Number | Case No: 10231 of 2007 |
| Court | Chancery Division |
| Date | 04 December 2008 |
[2007] EWHC 3180 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Lord Chancellor
Case No: 10231 of 2007
MS ADDY appeared on behalf of the Appellant
MISS D CRUZ(?) appeared on behalf of the First Respondent
MR DOYLE appeared on behalf of the Second Respondent
Approved Judgment
This is an appeal of Her Majesty's Revenue and Customs for the permission of the judge from the order of District Judge Hemthorne(?), sitting in the Liverpool County Court and made on 8 September 2008. By that order he ordered that the bankruptcy order made against Mr Cassells on the petition of the Revenue and Customs on 1 May 2003 be rescinded under s.375 of the Insolvency Act 1986. Section 375(1) provides as follows:
“Every court having jurisdiction for the purposes of the Parts of this Group may review, rescind or vary any order made by it in the exercise of that jurisdiction.”
The parties before me accept that the exercise of that wide discretion is to be informed by the propositions formulated by the late Laddie J in Papanicola v. Humphreys [2005] 2AER 218 in paragraph 25, I quote:
“It seems to me that a number of propositions can be formulated in relation to s.375. Some of them are derived from the passages cited above:
(1) The section gives the court a wide discretion to review vary or rescind any order made in the exercise of the bankruptcy jurisdiction.
(2) The onus is on the applicant to demonstrate the existence of circumstances which justify exercise of the discretion in his favour.
(3) Those circumstances must be exceptional.
(4) The circumstances relied on must involve a material difference to what was before the court which made the original order. In other words there must be something new to justify the overturning of the original order.
(5) There is no limit to the factors which may be taken into account. They can include, for example, changes which have occurred since the making of the original order and significant facts which, although in existence at the time of the original order, were not brought to the court's attention at that time.
(6) Where the new circumstances relied on consist of or include new evidence which could have been made available at the original hearing, that, and any explanation by the applicant gives for the failure to produce it then or any lack of such explanation, are factors which can be taken into account in the exercise of the discretion.”
I would emphasise the point made in the second of the stated principles, which echoes the dictum of Millett LJ as he then was, in Fitch v. Official Receiver [1996] 1 WLR 242 at page 249, namely that the circumstance must be one which justifies the exercise of the statutory discretion in favour of the Applicant.
I turn then to the facts of the appeal. Between 1998 and 2003 the First Respondent, Mr Cassells worked in partnership with his wife in a business of data communications under the name of Data Solutions. Their work was undertaken with sub-contractors in the construction industry with the consequence that their fees were paid, after deduction of tax, at 18 per cent in pursuance of the construction industry taxation scheme.
In 1998 to 2002 Mr Cassells underwent a number of serious personal problems, including the suicide of his brother, a serious flood in which his computer and other records were destroyed, the post-natal illness of his wife and the serious illnesses of both his parents. Whether as a consequence of those problems or not, he did not file any self-assessment tax returns for the years 1998/1999 to 2001 to 2002 inclusive, notwithstanding frequent reminders from the Inspector of Taxes to do so. Accordingly the Revenue and Customs obtained a number of assessments under s.28(c) of the Taxes Management Act 1970 for those years in respect of income tax and national insurance contributions amounting in the aggregate to some £4,533.64. Mr Cassells did not pay those liabilities and on 5 August 2002 the Revenue and Customs issued a statutory demand addressed to Mr Cassells requiring payment of the sum of £4,533 odd. It was served by post on 13 September 2004, but again Mr Cassells ignored it. Accordingly, on 7 January 2003 the Revenue and Customs issued a bankruptcy petition and presented it to the High Court in London based on the statutory demand to which I have referred.
Again, on 13 March 2003 they had to obtain an order for substituted service of the petition by post. It was duly served two weeks later and the bankruptcy order was made by the District Judge on 1 May 2003. That is the order that was rescinded by the District Judge in the order now under appeal.
On 20 June 2003 the Official Receiver produced a statement of assets and liabilities for the purpose of the meeting of creditors to be held shortly. It indicated in the aggregate creditors of some £13,562 of which £4,533 was claimed by the Revenue and Customs and assets of some £40,000, being based on Mr Cassells' own valuation of the matrimonial home, which he held in equal shares with his wife, but subject to a substantial mortgage. If the valuation were sound and if the house were realised it would generate sufficient assets at that price to produce a surplus of £26,484. A meeting of creditors was duly held on 17 July 2003 and the Second Respondent was appointed the Trustee in Bankruptcy of Mr Cassells.
There followed further correspondence between the Revenue and Customs and Mr Cassells. On 18 December 2003 the Revenue indicated that, based on Mr Cassells return for 1998 to 1999 and further calculations for the years to 1999 to 2000, which he had recently provided, he had overpaid tax and was entitled to a refund of £6,113.17. Whether as a result of that letter or otherwise, on 17 February 2004 Mr Cassells rang the Revenue and indicated that he did not, in his opinion, owe them anything and would be applying for an order to annul his bankruptcy.
On 14 July 2004 the Second Respondent, the Trustee in Bankruptcy, made a report to the court in support of an application to suspend the automatic discharge of Mr Cassells, because of his non-cooperation with the Trustee. In his report he set out in detail the failure of Mr Cassells to cooperate with him as his Trustee. In addition, he described how on many occasions he advised Mr Cassells that any annulment application would need to be supported by evidence of funds with which to pay all his creditors and the costs of the Trustee. On 20 August 2004, by that date all outstanding tax returns had been submitted by Mr Cassells to the Revenue and Customs. On 16 September 2004 the Revenue calculated Mr Cassells' tax liability to be £3,890 odd and so informed him, and we now know it should have been calculated as nil.
The application for the suspension of Mr Cassells' discharge was resulted on 7 December 2004 in an order suspending his discharge indefinitely. On 23 August 2005 the Revenue and Customs, wrongly, as they now accept, advised Mr Cassells that he could only obtain credit for the sub-contractor tax deductions by making a separate claim for them and thereafter setting them off against his liability for tax under the assessments.
On 30 January 2007 the Trustee in Bankruptcy applied for an order for the sale of the matrimonial home of Mr Cassells and his wife at 4 St Brandon's Close, Huyton, which was in their joint names. That prompted or six months later in August, eight months later on 22 October 2007, Mr Cassells having written to his member of Parliament the member of Parliament then wrote to the Revenue and Customs asking for an investigation of Mr Cassells' case. The order for sale sought by the application to which I earlier referred was made by District Judge Fitzgerald on 6 November 2007 and a week later, on 14 November 2007, the Revenue and Customs, having reviewed Mr Cassells' liability, accepted that he had been in credit to the tune of £10,019.35 and that that would extinguish their claim in the bankruptcy. They so informed Mr Cassells' member of Parliament. Two weeks later on 27 November Mr Cassells issued an Appellant's notice by way of appeal upon the order for sale made by the District Judge. On 13 December 2007 Revenue and Customs told Mr Cassells that they had no claim in his estate in the light of their recalculation of his non-existent tax liability.
On 20 December 2007 Mr Cassells applied for an order to annul the bankruptcy order made on 1 May 2003 or alternatively to rescind it. By that time six other creditors had submitted proofs of debt in his bankruptcy aggregating in all in the sum of £11,648 odd, the Trustee having incurred further costs and expenses of £64,524 of which £52,617 had been incurred since 1 September 2004.
On 8 January 2008, His Honour Judge Hodge QC, stayed the order for sale of the matrimonial home of Mr Cassells and his wife pending the hearing of Mr Cassells' annulment application, which had been issued three weeks, two weeks before. Mr Cassells obtained legal aid. He put in an affidavit in support of his application for annulment and rescission and this was answered by a witness statement from Mr Bennett for the Revenue and Customs.
The matter came before District Judge Hemthorne(?) on 6 May 2008. The principal claim was that the District Judge should annul the bankruptcy order under s.282 of the Insolvency Act 1986. That section enables the court to annul a bankruptcy order on either of two grounds. They are and I quote from s.282(1):
“(a) That...
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