Council tax – Liability order – Bankruptcy – Defendant council obtaining liability order against claimant for unpaid council tax – Part of sum subject of previous liability order and bankruptcy order against claimant – Whether inclusion of bankruptcy debt requiring second liability order to be quashed – Whether sums not claimed in previous liability order also bankruptcy debts as contingent liabilities – Claim allowed
The claimant lived at premises in respect of which he was liable to the defendant council for council tax. In June 2006, the defendants obtained a liability order against the claimant, under the Council Tax (Administration and Enforcement) Regulations 1992, in respect of council tax for the financial year 2005-06. Later in 2005, a bankruptcy order was made against the claimant on the petition of the defendants. In 2006, the defendants obtained a further liability order in respect of unpaid council tax for the period from November 2005 to March 2007. The 2006 order mistakenly contained some duplication since it in part covered sums that had already been the subject of the 2005 order.
The claimant brought judicial review proceedings to quash the 2006 order. He contended that: (i) the duplication meant that the 2006 order was for too great a sum: (ii) the defendants should have proved in his bankruptcy for the indebtedness for the financial year 2005-06; and (iii) as the claimant’s creditors in respect of a debt provable in the bankruptcy, the defendants had been obliged to obtain the leave of the court in order to bring legal proceedings against him. He further submitted that the remainder of the sum under the 2006 order was likewise a bankruptcy debt, in the form of a “contingent liability” within the meaning of section 382 of the Insolvency Act 1986.
The defendants accepted that the 2006 order was erroneous so far as it included the 2005-06 sum, and offered an undertaking that they would not enforce the 2006 order but would instead institute the process available to them as billing authority, under regulation 36A of the 1992 Regulations, to apply to the magistrates’ court for the substitution of a liability order in a smaller amount. They also raised a point that they should not have been named as defendants, but rather as an interested party, to the claimant’s proceedings since the order complained of had been made by the magistrates’ court.
Held: The claim was allowed.
(1) The statutory scheme expressly envisaged that the court’s failure to issue a lawful liability order might be directly attributable to the billing authority’s decision in providing information to the court that turned out to be incorrect. The essence of the claimant’s claim was that the defendants had been responsible for the unlawful order made by the magistrates’ court. That was sufficient to found a claim against the defendants for judicial review.
(2) The 2006 order was defective since: (i) it was for too great an amount; (ii) it had been obtained by taking proceedings without the court’s permission in breach of section 285(3)(b) of the Insolvency Act 1986; (iii) part of the sum claimed, relating to the financial year 2005-06, was a bankruptcy debt and unenforceable outside the bankruptcy; and (iv) it was duplicative because the defendants had already obtained a liability order in respect of that debt. It was appropriate to quash the 2006 order rather than accept the defendants’ undertakings, since it was doubtful whether the regulation 36A procedure was intended to cover such a situation and, moreover, that procedure enabled the defendants to include the costs of obtaining the first, defective liability order in the substitute order, which would not be fair to the claimant.
(3) Although the council tax for the financial year 2005-06 was a bankruptcy debt, that payable for 2006-07 was not. In order for a liability to qualify as a “contingent liability” within section 382 of the 1986 Act, the bankrupt had to be under an existing legal obligation as at the date of the bankruptcy, although that obligation might be contingent upon the happening of a future certain event. At the date of the claimant’s bankruptcy, he had been under a legal obligation to pay council tax in respect of the entire financial year from 2005-06. Even though liability for council tax accrued daily, the 1992 Regulations required the council to serve a demand notice for the entire financial year, requiring payments on account in respect of the estimated chargeable amount for that year; it was the claimant’s failure to pay such an instalment that had given rise to his liability to pay the entire balance and to the consequent liability order when he failed to do so. Accordingly, the sum for 2005 to 2006 was a bankruptcy debt even though, on its face, it related to a period after the claimant had been adjudged bankrupt. The position was different in respect of the 2006 to 2007 financial year. As at the date of the bankruptcy, the claimant had been under no obligation to make a payment on account in respect of that year since the defendants had not yet carried out their estimates or issued any demand notice. The claimant had been under no “contingent liability” in respect of that year at the date of the bankruptcy such as to make it a bankruptcy debt: R (on the application of Steele) v Birmingham City Council [2005] EWCA Civ 1824; [2007] 1 ALL ER 73 and R (on the application of Balding) v Secretary of State for Work and Pensions [2007] EWHC 759 (Admin); [2007] 4 All ER 422 considered.
The claimant appeared in person; Ali Sinai (instructed by the legal department of Southwark London Borough Council) appeared for the defendants.
Sally Dobson, barrister
