Q&A: Setting Aside Liability Orders

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Q. The council is planning to enforce a liability order, but the debtor is seeking to set it aside on the basis that the debt is disputed. How should we deal with this?

A. Whilst the magistrates’ court does have the power to re-open criminal cases, there is no corresponding power in respect of non-payment of council tax or business rates, which is a civil matter. Equally, there are provisions within the Civil Procedure Rules to set aside court orders in the county court and high court, but the CPR do not apply to magistrates’ court proceedings.

Common law route

However, the authority to set aside liability orders has now been established as a common law principle following a series of three cases beginning in 2002.

The first was Liverpool City Council v Pleroma Distribution Limited [2002] EWHC 2467. In this case the debtor was seeking an adjournment of the hearing, and although the other parties were aware of the application the judge was not, and proceeded to grant liability orders.

Maurice Kay J commented that “in such a situation, does it follow that they exhausted their jurisdiction upon the pronouncement of the liability order and were powerless to reopen the matter once the true position was made known to them? In my judgment it does not. It would be unfortunate and contrary to common sense and fairness if the magistrates were constrained by law to stand on their earlier decision, made in ignorance of the facts, and to have to direct the disadvantaged rate payer to the administrative court on an application for judicial review”.

Whilst the principle was established, the grounds on which it was available to parties were very much refined in the next case of R (Application of Brighton & Hove City Council) v Brighton & Hove Justices, Michael Handon [2004] EWHC 1800 Admin.

Stanley Burnton J held that “it is important to take into account that the jurisdiction which Maurice Kay J held to exist cannot be exercised simply because a defendant disputes his liability to pay the NNDR in question. That there is a genuine and arguable dispute as to that liability is a necessary condition for a decision by justices to set aside a liability order, but it is not a sufficient condition.

The power of a magistrates’ court to set aside a liability order it has made is an exceptional one, to be exercised cautiously. In my judgment, in general the magistrates’ court should not set aside a liability order unless it is satisfied, in addition to their being a genuine and arguable dispute as to the defendant’s liability for the rates in question that

(a) the order was made as a result of a substantial procedural error, defect or mishap; and

(b) the application to the justices for the order to be set aside is made promptly after the defendant learns it has been made or has notice that an order may have been made.”

In relation to (a), in most cases it will have to be shown that the liability order was unlawful and made in excess of jurisdiction or in ignorance of a significant fact concerning the procedure of which the justices should have been aware.

Point (b) addresses any attempts by defendants to circumvent the requirements of the strict time limits set out in CPR Part 54.5 (relating to judicial review).

The judge indicated that promptness normally requires action within days or most a very few weeks, not months and certainly not as much as year.

Finally in R (Mathialagan) v London Borough of Southwark [2004] EWCA Civ 1689 the court took the view that “where there has been a clear mistake by the court itself going to the basis of its jurisdiction, or the fairness of the proceedings, where the resulting decision would clearly be quashed on judicial review, it may be open to the court to correct the mistake of its own motion.”

3 Prong Test

There is therefore a 3 prong test which can be applied to the particular circumstances faced by the council in any given case:

1. There must be a genuine and arguable dispute as to the defendant’s liability to the order in question; and

2. The order must be made as a result of a substantial procedural error, defect or mishap; and

3. The application to the justices for the order to be set aside must be made promptly after a defendant learns that it has been made or has notice that any order may have been made. Prompt action means a matter of days or at most a very few weeks, not months and certainly not as much as year.

If the council is not satisfied upon consideration of all of the facts of the particular case that all three limbs of this test have been met, then it is reasonable to seek to challenge the debtor’s application. However, where the council takes the view that the test has been met, authority for the order to be quashed (or the sum due reduced) is provided by section 82 of the Local Government Act 2003.

Winding Up or Bankruptcy Proceedings

On a similar note, what about a debtor who seeks to challenge winding up or bankruptcy proceedings on the basis that he disputes the liability order?

The debtor has no entitlement to do so simply because the liability order is disputed. In the recent case of Dias v London Borough of Havering [2011] EWHC 172 the court held that even though the majority of liability order proceedings may be viewed as a “rubberstamping” exercise without the protection of a full judicial process and with limited rights of appeal, a bankruptcy court cannot look behind the liability order unless the debtor or interested party is able to demonstrate that it was obtained by fraud, collusion or a miscarriage of justice.

Greenhalgh Kerr
Olympic House, Beecham Court,
Smithy Brook Rd,
Wigan WN3 6PR

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