Bolsover District Council & Anor v Ashfield Nominees Ltd & Ors

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.

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.

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.

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.

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.

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).

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.

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.

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.

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 amount due by way of council tax would be a debt for which the relevant council could prove in the bankruptcy. It would follow that it could (if of sufficient amount) be the basis for a bankruptcy petition or, if the taxpayer is a company, a winding-up petition. The only oddity, in this context, is that the regulation should speak of the amount being deemed to be a debt for insolvency purposes, since it is already a debt for those purposes even before the making of the liability order. The Court of Appeal considered an argument based on that wording in Preston BC v Riley [1999] BIPR 284, which concerned unpaid community charge for which a liability order had been made, and its treatment in the context of the special insolvency regime under an administration order under the County Courts Act 1984, for which (unlike for proceedings under the Insolvency Act 1986 itself) no provision was made in the relevant regulations. It rejected the argument that the express deeming by the equivalent of regulation 49 meant that unpaid community charge was not a debt for any other purpose or in other circumstances.

It had also been held, as regards general rates, that if the amount in question had been due and unpaid for more than 6 years, it was time-barred and therefore could not found the basis of a petition: see Re Karnos Property Co Ltd [1989] BCLC 340, following China v Harrow UDC [1954] 1 QB 178 where the same factor was held to preclude an application for a distress warrant.

The regime prescribed by the 1992 Regulations appears to be comprehensive as regards enforcement of the obligation to pay council tax in all respects other than the fact that the amount due counts as a debt (for the purposes of insolvency proceedings) even if a liability order has not yet been made.

Mr Lock submitted that, in addition to the 6 year period running from when the relevant amount of council tax became due, which applies under regulation 34(3), there is a further 6 year period running from the date of the liability order, imposed by section 9 of the Limitation Act 1980. That would apply to anything falling within the scope of an “action” under the 1980 Act. This is defined as including “any proceeding in a court of law, including an ecclesiastical court”: section 38(1). As such it has been held to include the presentation of a winding-up petition: see Re Karnos Property Co Ltd already mentioned. It would not, on the other hand, apply to several of the other methods of enforcement provided for under Part VI of the 1992 Regulations. A council can make an attachment of earnings order, an attachment of allowances order (relevant to elected members of a council) or a distress without reference to any court. Commitment to prison requires an order of the magistrates’ court, and a charging order is made on application to the relevant county court. The latter, at any rate, and presumably the former, would be caught by section 9 if Mr Lock is right.

In common with the position which applied as regards general rates, a council cannot recover sums of council tax due but unpaid by a civil claim in the county court or High Court. That was held to be the case in Liverpool Corporation v Hope [1938] 1 All ER 492. For general rates the remedy (apart from insolvency proceedings) was distress.

Liability orders were first brought into the legislation (so far as I am aware) when the community charge was introduced. Presumably this was a policy decision, designed to create a summary jurisdiction in a local court, which would be more economical and possibly more convenient in every respect than requiring the bringing of actions in the county court. For the community charge, as for council tax, the relevant council could only apply for a liability order; it could not bring proceedings in the county court.

By contrast, for non-domestic rates, the relevant council has a choice. The relevant regulations are the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989, SI 1989/1058. (Similar provision is made for properties included in the national list.) The council may apply for a liability order for any unpaid rates which have been outstanding for no more than 6 years: regulation 12. Alternatively it may bring proceedings in a court of competent jurisdiction: regulation 10(2) and 20(1). If it decides to institute proceedings in such a court, it may not then apply for a liability order. I dare say that the reason for allowing ordinary civil proceedings in the case of non-domestic rates is that the amounts might in some cases be very large, and that possibly more complex issues might arise which could not conveniently be dealt with in the magistrates’ court.

However, the fact that there are two different routes in that case, one of which is identical to that which we have to consider, seems to me to be illuminating. No doubt, if the council uses the option of ordinary civil proceedings to recover arrears of non-domestic rates, the claim would be subject to section 9 of the Limitation Act, and only the last 6 years’ arrears could be recovered. Correspondingly, if the council uses the other option of going to the magistrates’ court for a liability order, it can only obtain such an order in respect of non-domestic rates that fell due within 6 years before the application to the magistrates’ court. At that stage, therefore, the two alternative courses are treated identically for limitation purposes. If, having proceeded in the county court or the High Court, the council obtains a judgment for a sum of non-domestic rates, it then has the various options by way of enforcement that are available generally. It is not subject to any further limitation period, save (under section 24) if it were to take the unusual step of issuing a fresh action on the judgment. It is not subject to a 6 year time limit for an application for a charging order (Lowsley v Forbes [1999] 1 AC 329) nor for the presentation of a winding-up petition: Ridgeway Motors (Isleworth) Ltd v ALTS Ltd [2005] EWCA Civ 92. If Mr Lock is right, however, a council which uses the magistrates’ court route and obtains a liability order must act within 6 years after the liability order if it is to enforce the liability order by any means which requires an application to a court, whether it be a charging order or a winding-up or bankruptcy petition. That would be an anomalous position, for which I am unable to discern any logical basis.

Mr Lock submitted that the reason for this is the narrow construction placed on section 24 of the Limitation Act in Lowsley v Forbes. He also observed that there can be other cases in which one method of enforcement is available (at least in theory) but another is not; in Re Karnos Property Co Ltd a distress warrant previously issued was in existence but a fresh winding-up petition was out of time. I do not regard the latter as odd. If a creditor has a choice of remedies to which time limits apply, he may invoke one or some of them in time but later be out of time when he wishes to use another. According to China v Harrow UDC the six year limit under what is now section 9 applied to an application to a magistrates’ court for a distress warrant. Mr Lock is entitled to say that section 24 imposes a limitation period which applies only to a single, and now highly unusual, remedy, so that this one would be barred when others are not, but I do not see that this point goes further than that.

The issue is whether the presentation of the winding-up petition is precluded in respect of council tax due under liability orders made more than 6 years previously, by the terms of section 9 of the Act. Part I of the Act sets out the “ordinary time limits for different classes of action”. Section 2 deals with actions based on tort, which this plainly is not. Section 5 gives the time limit for “an action founded on simple contract”. Mr Lock suggested in his skeleton argument that, because the 1992 Regulations deem the unpaid council tax to be a debt, and because a debt normally arises from a contract, therefore section 5 might apply. Plainly it does not, because the action is not founded on a contract of any kind. Regulation 49 of the 1992 Regulations deems the amount due under the liability order to be “a debt for the purposes of” the respective provisions of the insolvency legislation that are referred to. It does not change its nature.

Section 9(1) is as follows:

Section 24(1) deals, as already noted, with a rather special and now very rare case:

The only other provision to which I should refer is section 39 which, so far as relevant, says:

Mr Lock argued that, whatever else the councils’ proceedings might be, they are plainly proceedings to recover sums which are recoverable by virtue of an enactment, namely the 1992 Act and Regulations. Accordingly, he said, they are barred under section 9. It matters not, he submitted, that they are not within the scope of section 24, if he is right that they do fall within section 9.

Mr Morgan for the councils submitted, to the contrary, that although the council tax became due under the relevant enactments, the sums for which the petitions have been issued are recoverable by virtue of the liability orders, just as, if the council had the option for council tax (as it has for non-domestic rates) of proceeding in the county court, sums for which judgment had been entered would be recoverable by virtue of the judgment, not of the original cause of action.

In support of his argument on section 9, Mr Lock showed us some cases from a variety of very different statutory contexts where the phrase “by virtue of” has had to be construed. I think it is only useful to consider those concerned with section 9 or its statutory predecessor, section 2(1)(d) of the Limitation Act 1939. One of these is Central Electricity Board v Halifax Corporation [1963] AC 785.

By the Electricity Act 1947 assets of electricity undertakers were transferred to electricity boards on 1 April 1948. Property held by a local authority wholly or mainly in its capacity as authorised undertaker vested in the relevant board without any further assurance, or, in the case of cash, in the central board. Halifax Corporation was an electricity undertaker. It transferred £34,500 out of accumulated revenues of its electricity undertaking to its general account. The central electricity board claimed that this sum vested in it under the Act. It did not start proceedings to recover it until 1959. The claim was resisted under section 2(1)(d) of the Limitation Act 1939. The relevant minister, acting under a power to resolve disputes conferred by the Act, had decided that the money had been held by the corporation wholly or mainly as electricity undertakers; that decision was given in September 1958. It was argued that the cause of action did not arise until that decision had been given. The House of Lords rejected that argument, observing that the minister’s decision did not create a new right of property or chose in action, but merely enabled a pre-existing right of action to be enforced. Albeit that the minister had to decide any dispute of fact relevant to the claim, the plaintiff could have issued proceedings for the recovery of the money at any time after 1 April 1948.

The other response to the plea based on section 2(1)(d) was that the claim was on a specialty, so that a 12 year period applied, an Act of Parliament being said to be a specialty, following cases decided under the Real Property Limitation Act 1833 in which a limitation period for such a claim was first introduced, a claim on an Act being classified as such. However, as Goddard LJ pointed out in Leivers v Barber Walker & Co Ltd [1943] KB 385 at 398, the introduction of the new provision in section 2(1)(d) of the 1939 Act changed the position altogether, leaving the provision for specialties to apply only to deeds and other documents under seal (or to claims other than for the recovery of money). Goddard LJ was in a minority in that case, but what he said on this was approved by Lord Reid in Central Electricity Board v Halifax Corporation at [1963] AC page 799.

Mr Lock submitted that this case showed that the existence of an intermediate step such as the liability order in a council tax case does not have the result that what is enforced is anything other than the liability created by the statute. I do not see that the decision in Central Electricity Board v Halifax Corporation is to that effect. In that case the Act gave the board the entitlement without more, apart from a requirement that, if any factual point was disputed, it had to be resolved by the minister rather than by a judge or jury. The board could have issued its proceedings claiming the money as soon after 1 April 1948 as it discovered the existence of a relevant fund. It is plain that the board’s entitlement to recover the money was given by the Act.

Here, as the judge recorded at paragraph 6 of his judgment under appeal, Mr Lock accepted that the obligation to pay the council tax had merged in the obligation to comply with the liability order. That liability, of course, included an amount referable to the council’s costs which had not previously been due from the relevant company. That seems to me to be a quite different situation from that which had to be considered in Central Electricity Board v Halifax Corporation.

The other case on which Mr Lock relied in support of his argument about section 9 was Re Farmizer (Products) Ltd [1997] 1 BCLC 589, a decision of the Court of Appeal on appeal from Blackburne J. The claim was brought in 1992 under section 214 of the Insolvency Act 1986 by the liquidators of a company which went into liquidation in 1987, against the sole directors of the company. Relying on delay in pursuit of the claim, the respondents applied to strike it out in 1995. One of the issues was whether a new claim issued then would be statute-barred, more than 6 years having elapsed since the acts relied on and since the commencement of the liquidation. The Court of Appeal held that section 9 did apply, the cause of action under section 214 being created by the Act, and arising at the start of the liquidation, notwithstanding that it depended on an exercise of discretion by the court as to whether to award any, and if so what, remedy. Peter Gibson LJ said, at [1997] 1 BCLC page 599:

Echoing that, Mr Lock submitted that, if one were to ask by virtue of what are the sums specified in the liability orders recoverable, the answer would be: by virtue of the 1992 Act and Regulations.

Plainly the liability of the companies in the present case to pay council tax was created by the 1992 Act and Regulations. Logically, a six year period should apply to proceedings to recover unpaid council tax as from the date on which it fell due for payment. However, that is not what Mr Lock contended before us, any more than he did before the judge, who recorded in terms at paragraph 5 that he argued that the six years ran, not from the date when the council tax became due, but rather from the date on which the liability order was made. There is, of course, a six year limit which applies from the date when the council tax became due. That is imposed not by the 1980 Act but by regulation 34(3) of the 1992 Regulations. Mr Lock did not argue that section 9 of the 1980 Act applies to that period. He said that it applies to the period running from the making of the liability order. It seems to me that this contention is illogical. If section 9 applies, it prevents an action to recover relevant sums more than 6 years after “the date on which the cause of action accrued”. In China v Harrow UDC Lord Goddard CJ observed at [1954] 1 QB page 185 that:

On that basis, time should run under section 9 from the date on which the relevant instalment of council tax should have been paid. If the correct application of section 9 were that it should run as from the date on which the council tax should have been paid, then Judge Cooke’s decision at the earlier stage of these proceedings would have been wrong, because he took the 6 year period as running from the date of the liability order, no doubt because liability for sums due under more recent liability orders was not disputed, even if the council tax had accrued due more than 6 years before the date of the relevant petition.

It seems to me that the correct view is that section 9 of the 1980 Act does not apply as regards unpaid council tax. Instead, regulation 34(3) imposes an equivalent restriction on obtaining an order to enforce the liability. Either that displaces section 9, because of section 39 of the 1980 Act, or it renders it superfluous, because regulation 34(3) has exactly the same effect. Subject only to the application of that restriction, it seems to me that there is no further time bar on proceeding under a liability order. I accept that, whereas unpaid council tax can rank as a debt for the purposes of the Insolvency Act 1986 even if no liability order has been made, this is subject to the proviso that, if the tax fell due for payment more than six years previously, so that a liability order could no longer be applied for in respect of that sum, it would not be a valid debt for the purposes of insolvency proceedings. That is no more than an application of the 1992 Regulations by analogy.

For that reason it seems to me that Judge Cooke’s decision was correct. That approach also avoids creating an inexplicable anomaly in the area of non-domestic rates, as between proceedings by way of a liability order and the alternative of proceedings by way of a civil action. In each case, the time bar would apply at the outset, at the point of the application for a liability order (under the regulations) or the issue of a Claim Form (under section 9), but it does not apply at any later stage in addition. Just as one does not find the Limitation Act applying after the entry of judgment in a civil action, except in the narrow case covered by section 24, so it seems to me that it would be surprising to find it applying after the making of a liability order. In his judgment in Dennis Rye Ltd v Bolsover DC [2009] EWCA Civ 372 (which, although on an application for permission to appeal, was a reserved judgment and expressly authorised for citation) Mummery LJ said:

In Yorkshire Bank Finance Ltd v Mulhall [2008] EWCA Civ 1156, this court had to consider whether, and if so how, the Limitation Act applied where a creditor had a judgment against a debtor and a charging order to enforce that judgment, but had not taken steps to enforce either for more than 12 years. Those issues are of course different from those that arise in the present case. But at paragraph 36 I said this:

By the same token, it seems to me logical as a matter of policy that a time bar should apply to a liability for unpaid council tax once, namely at the stage of the application for a liability order, when a time limit like section 9 is applied under the 1992 Regulations, but that it should not apply thereafter, once a liability order has been made. By that stage, it seems to me, the liability which is to be enforced is under the liability order, not for the original council tax.

For those reasons I consider that the presentation of a winding-up petition in respect of sums due under liability orders for unpaid council tax is not within the scope of section 9 of the Limitation Act 1980. I agree with the judge’s conclusion and would dismiss this appeal.

I agree.

I also agree.