If the Valuation Tribunal makes a decision which reduces or extinguishes the liability of the debtor a number of questions arise:

• What is the status of the liability order?
• What is the status of the order in insolvency proceedings?
• Who pays for any change in status?

Whilst there are effectively two parallel forums in which ratings liability can be challenged, albeit on different grounds, there remains the prospect for proceedings to fall out of sync and effectively the foundation for enforcement action to be ripped out from under a creditor. This is frequently seen in cases where a local authority obtains a liability order in the Magistrates’ Court and goes on to issue insolvency proceedings on a failure to pay, whilst the debtor at the same time mounts a challenge before the Valuation Tribunal.

Following protracted proceedings, these points fell to be considered by the Court of Appeal in Yang v The Official Receiver and Ors [2017] EWCA Civ 1465. The case was one in which the debtor always disputed the hereditament being classed as a house of multiple occupation. Liability orders were obtained on the basis that it was, followed by the local authority obtaining a bankruptcy order. Two applications to annul followed, after which the Valuation Tribunal confirmed that the property should not have been a HMO.

By this point, the debtor had paid the sums owing and then made a third application to annul or in the alternative for rescission of the bankruptcy order. At first instance, the District Judge favoured rescission and his decision was upheld on appeal. Permission was then given to appeal to the Court of Appeal and the matter was heard by Gloster LJ, Vice President of the Court of Appeal, Civil Division, and Sir Patrick Elias. The appeal was dismissed and accordingly the decision to rescind upheld.

The status of the liability order:

In Yang, the point was only considered obiter by Gloster LJ given that the orders had already been satisfied:

“[14] I interpose that, strictly, the liability orders do not appear to have been set aside as they had by then been discharged by the appellant. However, the effect was the same and it was not suggested that the position would have been any different if the liability orders had remained outstanding and had been set aside. It is therefore convenient to refer to the liability orders as having been “set aside”, in the sense that subsequently to the BO it was decided that the liability orders should not have been made in the first place.”

The Court effectively adopted an approach of set aside by analogy, on the basis that it made no difference in the index case. The implication therefore seems to be that whether by application to set aside or following discharge with credit to be given, the liability order becomes void. I do not think that to be a satisfactory approach. The test for setting aside a liability order per The Queen on the Application of Brighton and Hove City Council v Brighton and Hove Justices v Michael Hamdan [2004] EWHC 1800 (Admin) requires consideration of more than simply whether the order ought to have been made on the facts. There is a requirement of procedural error and promptness. In cases where that test cannot be met, it remains arguable that where the liability order remains in force so should any order made consequent upon it.

The status of the order in insolvency proceedings:

This question was the question to be determined on appeal in Yang. As set out above, the decision of the first instance judge was upheld on both first and second appeal favouring rescission over annulment, on the basis that the Valuation Tribunal’s decision was not a ground existing at the time the bankruptcy order was made thus the requirement for annulment was not met. The consequence is that rather than the bankruptcy order being treated as never having been made, it is simply concluded at the date of the rescission order with prior steps taken not being invalidated.

Who pays for the change?

On a further positive note, the Court of Appeal affirmed the approach of both District Judge Khan and His Honour Judge Hodge QC that the question of costs was to be considered separately from the outcome of the application for annulment or rescission. A key consideration was the conduct of the debtor. Therefore, local authorities should remain confident that where they have given debtors sufficient time to approach the VOA before pursuing insolvency they will not be deprived of their costs as a result of last minute efforts by the debtor, even if the debtor is successful in having alterations made to the list.

Alex Worthington