Liability orders are a powerful tool for debt recovery. When obtained in the Magistrates’ Court, for example in relation to Council Tax or National Non-Domestic Rates, they can be enforced in other forums such as the County Court and High Court in relation to charging orders and insolvency action.

When in other forums, the starting point is that the new forum won’t investigate the basis on which the liability order was made. It therefore isn’t open to a ratepayer when faced with, say, a bankruptcy petition to argue that he didn’t owe the underlying NNDR. There are of course narrow exceptions to this rule which would enable the new forum to look behind the liability order, but these circumstances are limited to ones involving fraud, collusion or a miscarriage of justice. It would take much more than a mere denial in relation to the original liability, but instead some procedural impropriety with an element of dishonesty or a fundamental failing in the administration of justice.

This only realistically leaves three options available to the person faced with enforcement action; pay the liability order in full, accept the enforcement action or challenge the liability order in the original forum.

Grounds to challenge a liability order

Save for the narrow grounds of fraud, collusion or miscarriage of justice outlined above, the only route to challenge a liability order is to apply to set it aside.

It is worthwhile briefly touching on the ability of a billing authority to make such an application. In Council Tax cases, since 2004 the Council Tax (Administration and Enforcement) Regulations 1992 have provided clear jurisdiction for a billing authority to apply to the court for the liability order to be quashed where it is considered that the order should not have been made.

Conversely, no such power exists in relation to NNDR. Where the Magistrates’ Court is a statutory court with limited jurisdiction, in the absence of an express power for it to quash or set aside a liability order for NNDR on a billing authority’s application it is arguable that the billing authority simply cannot apply. The alternative would be that an application could be made but would have to satisfy the same test as an application by the ratepayer (discussed below).

The power of the Magistrates’ Court to set aside a liability order, whether for Council Tax or NNDR, on a ratepayer’s application was identified in the now well known case of R. (on the Application of Brighton and Hove City Council) v Brighton and Hove Justices v Michael Hamdan [2004] EWHC 1800 (Admin). The power was described as “an exceptional one, to be exercised cautiously” and even then only when three criteria were satisfied:

1. A genuine and arguable dispute as to the ratepayer’s liability for the rates in question;
2. The liability order was made as a result of a substantial procedural error, defect or mishap; and,

• The application to set aside the liability order was made promptly.

The Application

The application to set aside does not have a prescribed form, but can instead simply take the form of a letter. The letter should, however identify the factual basis on which the applicant meets each limb of the test. Ordinarily, on receipt of the application, the court will seek a written response from the billing authority. In all but the clearest cases, where the billing authority has for example invited the ratepayer to apply (obviating the jurisdictional issue with it making the application itself) and does not intend to oppose the application, the billing authority’s response should be to seek the listing of the application for directions.

Similar directions ought to be sought in applications to set aside as would be sought in liability order proceedings themselves.

The first decision for the billing authority is whether or not it understands the ratepayer’s factual case sufficiently from the application. If not, the first direction to be sought is that the applicant fully particularise its application in the form of a statement of case (or position statement, where any issue is taken about the formality to be attached to pleadings).

In any event, directions for the billing authority to produce its own statement of case in response to the application, for the applicant to file and serve its evidence, for the billing authority to file and serve its evidence, for a bundle of documents to be prepared and for skeleton arguments to be exchanged should follow sequentially. The precise dates and timings will often flow from the date on which the court can fix a final hearing.

Part 2 to follow soon, when we will look at tactical considerations and what to do about ongoing enforcement

Alex Worthington