Re T. H. Knitwear (Wholesale) Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SLADE,LORD JUSTICE GLIDEWELL,MR. JUSTICE CAULFIELD |
| Judgment Date | 26 November 1987 |
| Judgment citation (vLex) | [1987] EWCA Civ J1126-1 |
| Docket Number | 87/1190 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 November 1987 |
and
[1987] EWCA Civ J1126-1
Lord Justice Slade
Lord Justice Glidewell
Mr. Justice Caulfield
87/1190
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(THE VICE-CHANCELLOR)
Royal Courts of Justice
MR. J. F. MUMMERY (instructed "by The Solicitor for the Customs and Excise) appeared for the Appellants.
MR. J. M. PRICE Q.C. (instructed by Messrs. Owston & Co., Leicester) appeared for the Respondents, T. H. Knitwear Ltd.
MR. M. A. TODD (instructed by Messrs. Rice Jones & Smiths, London Agents for Messrs. Rich & Carr, Leicester) appeared for the Respondent K. R. Eabry, Liquidator.
This is an appeal by H.M. Commissioners of Customs and Excise ("the Commissioners") from a judgment of Sir Nicolas Browne-Wilkinson V.-C. delivered on 27th October 1986 and reported at (1987) 1 W.L.R. 370. By this judgment the Vice-Chancellor determined a question relating to Value Added Tax ("VAT") which had arisen in the voluntary liquidation of T.H. Knitwear (Wholesale) Limited ("the Company").
In earlier years a number of suppliers had supplied goods and services to the Company under contracts which placed on the Company a contractual obligation to pay to the suppliers the basic price plus VAT on such price ("the VAT element"). The Company was under no statutory obligation to account for and pay VAT to the Commissioners in respect of the goods or services supplied. The creditors of the Company who supplied them were under statutory obligations of this nature. They in fact complied with these obligations and paid the appropriate amount of VAT to the Commissioners.
On 14th January 1981 at an Extraordinary General Meeting of the members of the Company it was resolved to place it in creditors' voluntary liquidation and Mr. K. R. Eabry was appointed liquidator. This appointment was subsequently confirmed by the creditors.
The provisions of section 12 of the Finance Act 1978 ("the 1978 Act") relating to" bad debt relief" then became applicable. So far as material this section provides:
"(1) Where—
(a) a person has supplied goods or services for a consideration in money and has accounted for and paid tax on that supply; and
(b) the person liable to pay any outstanding amount of the consideration has become insolvent, then, subject to subsection (2) and to regulations under sub-section (3) below, the first-mentioned person shall be entitled, on making a claim to the Commissioners, to a refund of the amount of tax chargeable by reference to the outstanding amount.
(2) A person shall not be entitled to a refund under this section unless—
(a) he has proved in the insolvency and the amount for which he has proved is the outstanding amount of the consideration less the amount of his claim;
…
(3) Regulations under this section may—
…
(d) require the payment of a refund under this section where any requirement of the regulations is not complied with or where the claimant subsequently proves for an amount which, taken with the amount for which he has previously proved, exceeds the amount mentioned in sub section (2)(a) above;"
Thus, if a supplier of goods or services is to be entitled to a refund in reliance on section 12(1), section 12(3) obliges him first to prove in the insolvency for the outstanding basic price, but in the first instance to refrain from proving for the VAT. If at the time of claiming a refund he has already proved for the VAT element, he will not be entitled to the refund. Section 12(3), however, made it clear that, having received his refund, the creditor is still to be fully entitled to prove in the insolvency for the VAT element, though the sub-section authorised the making of regulations which would require him to repay the refund if he subsequently proved for the VAT element.
Pursuant to the power conferred by section 12(3), the Value Added Tax (Bad Debt Relief) Regulations 1978 ( S.I. 1978 No. 1129) have been made. Regulation 8 provides in effect that, if a supplier, having obtained his refund, subsequently chooses to prove in the liquidation for the VAT element, he must repay the VAT element to the Commissioners.
A Statement of Affairs as at 14th January 1981, produced at the statutory meeting of creditors after the Company went into liquidation, showed an estimated total deficiency of assets of over £80,000. In these circumstances, the liquidator wrote to the Company's creditors advising them that they could obtain relief for the VAT element of the relevant outstanding debts. A number of creditors followed this suggestion. They proved for the basic price of the goods or services supplied but not for the VAT element thereon. They then sought and obtained "bad debt relief" pursuant to section 12 of the 1978 Act. The aggregate mount thus refunded to the creditors by the Commissioners was £38,438. The liquidator himself in effect discharged the creditors' claims on a "VAT exclusive" basis.
Events then took a surprising turn. The Company's assets realised much more than had been anticipated and the liquidator found himself with a surplus of assets over liabilities of about £61,000 which prima facie would fall to be distributed to the Company's contributories.
However, of this sum of £61,000, the sum of £38,438 represented the VAT that would otherwise have been payable if the creditors had not obtained bad debt relief. The Commissioners, by a letter to the liquidator of 31st January 1983, claimed in effect that, if this £38,438 were to be paid to the Company's contributories, it would represent a "mere windfall" and would amount to "an unjust enrichment of the contributories at the expense of the Crown and any such payment would be inconsistent with your powers and duties as liquidator which include, inter alia, your position as trustee".
In these circumstances the liquidator issued an originating summons in effect seeking directions under section 307 of the Companies Act 1948 with regard to the disposal of the surplus assets in his hands. There were joined as respondents to this originating summons (1) T.H. Knitwear Limited, the parent company and principal contributory of the Company, (2) Brentwood Brothers Leighton Buzzard Limited and (3) the Commissioners. The summons sought orders that the first respondent should represent the contributories and that the second respondent should represent the class of creditors whose proofs of debt had been admitted, but from whose proof the VAT element had been excluded.
At one stage in the earlier correspondence (see their letter to the liquidator of 14th June 1982 at p. 58 of our bundle) the Commissioners had suggested that they had a good claim to recover the £38,438 directly from the individual creditors and that, if the liquidator himself did not choose to pay the Commissioners, they would pursue their claim against the creditors. While I do not think that any relevant concession has been made, it has not been asserted in this court that any such direct right of recovery from the creditors exists.
The 1978 Act and the Regulations will be seen to contain three significant omissions:—
(1) They confer no right on the Commissioners to recover the refund from suppliers who have obtained a refund under section 12 in cases where a company, having "become insolvent" within the meaning of section 12(1)(b) of the 1978 Act, subsequently becomes solvent again owing to an unexpectedly advantageous realisation of its assets.
(2) Likewise, in such last-mentioned cases, they confer no right on the Commissioners to recover the amount of the refund from the company's liquidator by submitting proofs for this sum in the liquidation.
(3) They contain no provision empowering the Commissioners to require suppliers to prove for the VAT element. The suppliers who have obtained refunds in the present case would still have been free thereafter to put in proofs for the VAT element. But, since they would have been under a statutory obligation to hand over to the Commissioners any moneys received in the liquidation by virtue of such proofs, they had no incentive to take this course.
Nevertheless, Mr. Mummery, on behalf of the Commissioners, has submitted that the 1978 Act does not exclude the principles of common law and equity. In reliance on such principles he has submitted that the Commissioners have a right to be paid the £38,438 out of the assets of the Company. In argument before the D Vice-Chancellor he presented the Commissioners' case on three grounds. First, he based it on the principle of subrogation. Secondly, he submitted that they had a right in quasi-contract to be repaid the refunds which they had made to the suppliers on the grounds that they had made these refunds under compulsion of law (viz. section 12 of the 1978 Act) thereby relieving the Company of a liability. Thirdly, he relied on the principle of Ex parte James (1874) L.E. 9 Ch.App. 609.
The Vice-Chancellor rejected all three grounds, saying (at page 375):
"I would like to be able to hold in favour of the commissioners. It is to my mind manifestly wrong that the contributories should receive a windfall because the VAT, which would otherwise have indirectly depleted the assets available for them, has been remitted by the commissioners to the suppliers under a statutory relief. But I must decide in accordance with legal principle. I must not distort legal principles in order to produce what, to my mind, would be a just result."
In this court Mr. Mummery has relied on the first and third of these grounds, but not on the second.
SUBROGATION
Subrogation is in essence a...
To continue reading
Request your trial
-
Waldron v Herring and Others
...(1993), pp. 589 et seq.; Orakpo v. Manson Investments Ltd. [1978] A.C. 95, 104, per Lord Diplock and In re T. H. Knitwear (Wholesale) Ltd [1988] Ch. 275,284. It is available in a wide variety of different factual situations inwhich it is required in order to reverse the defendant's unjust e......
-
Michael Johnathan Christopher Oldham v (1) Stephen Katz (acting as joint liquidator of MK Airlines)
...or a threat of dishonourable behaviour on the part of the relevant court officer, by taking an unfair advantage of someone”: In Re T. H. Knitwear (Wholesale) Ltd. [1988] Ch. 275, 290 (Slade LJ). Less pejoratively, later cases refer to the behaviour only as needing to be “unfair”. 75 Thus in......
-
Re Nortel GmbH ((in Administration)) and related companies
...him not to do so", to quote Walton J in In re Clark (a bankrupt) [1975] 1 WLR 559, 563. The same point was made by Slade LJ in In re TH Knitwear (Wholesale) Ltd [1988] Ch 275, 287: "where a bankrupt's estate is being administered … under the supervision of a court, that court has a discre......
-
Spencer Day v Tiuta International Ltd, and Another
...& Jones Law of Restitution 4th. Ed. pp. 589 et seq.Orakpo v Manson Investments Ltd. [1978] AC 95 at p.104 per Lord Diplock; Re T.H. Knitwear (Wholesale) Ltd. [1988] Ch. 275, 284 CA. It is available in a wide variety of different factual situations in which it is required in order to reverse......
-
Nonlethal self-defense, (almost entirely) nonlethal weapons, and the rights to keep and bear arms and defend life.
...and thus preempts the Warren ordinance as to firearms. But the ordinance remains in effect for stun guns. (44.) See Act of June 13, 1988, ch. 275, [section] 134-16, 1988 Haw. Sess. Laws 510, 516; Act of July 10, 1986, ch. 212, 1986 Mass. Acts 456; Act effective July 1, 1976, No. 106, [secti......
-
Insolvency Law
...reviewer had pointed out that such a distinction, although recognised by the English Court of Appeal in Re T H Knitwear (Wholesale) Ltd[1988] 2 WLR 276, was anomalous given that the roles and responsibilities of both types of liquidators were very similar. It was also pointed out that there......