Summary

The right to appeal against tax assessments was not property capable of being sold within the meaning of the Insolvency Act 1986 Sch.4 Pt III para.6. A liquidator could therefore not assign the conduct of such an appeal to the liquidated company's former directors.

Facts

The applicant liquidator sought directions concerning the assignment of conduct of tax appeals by the company in liquidation (C).

The liquidator had begun misfeasance proceedings against the respondent former directors (D). Revenue and Customs later raised discovery assessments against C for corporation tax. At D's request, the liquidator caused C to appeal against the assessments. The liquidator informed D that unless the appeals succeeded he would allege in the misfeasance proceedings that they were liable to account to C for the debts created by the assessments. D requested the liquidator to assign the appeals to them. The liquidator could have power to assign the appeals only if the right to appeal was property capable of being sold within the meaning of the Insolvency Act 1986 Sch.4 Pt III para.6.

Held

(1) Heath v Tang [1993] 1 W.L.R. 1421 suggested by implication that a right to appeal was not to be treated as property; Royal Bank of Scotland Plc v Farley [1996] B.P.I.R. 638 was apparently consistent with that approach, Heath and Farley considered. There was also a Court of Appeal decision on an application for permission to appeal that on one reading was consistent with a right of appeal being a thing in action, and two Upper Tribunal decisions containing obiter observations supporting that approach, Wordsworth v Dixon [1997] B.P.I.R. 337, R. (on the application of Singh) v Revenue and Customs Commissioners [2010] UKUT 174 (TCC), [2010] S.T.C. 2020 and McNulty v Revenue and Customs Commissioners [2012] UKUT 174 (TCC), [2012] S.T.C. 2110 considered. Further, Cummings v Claremont Petroleum NL [1998] B.P.I.R. 187 had concluded that a bare right of appeal was not property, but that decision was not binding on the instant court and it had not been necessary on the facts of Cummings to decide the point, Cummings considered. It was therefore necessary to approach the issue as a novel point that had not been decided by binding authority, but from a starting point that the definition of property in s.436 of the Act was cast in the widest terms and that the court in Heath could have proceeded, but had chosen not to proceed, on the basis that a right of appeal was a property right. Firstly, a bare right to appeal against what would otherwise be a liability did not satisfy the classical definition of a chose in action: it was not a right that could be claimed by action, but a right unconditionally conferred on C; nor was it a property right that could only be enforced by action, Torkington v Magee [1903] 1 K.B. 644 applied. Secondly, there was a distinction between a chose and the remedies available for its enforcement. The right to a remedy was an incident of the ownership of the chose; the remedy was not something capable of being sold or assigned separately from the right to which it related, Investors Compensation Scheme Ltd v West Bromwich Building Society (No.1) [1998] 1 W.L.R. 896 applied. The right of appeal was conferred on C by reason of it having been assessed to tax; the tax liability to which the right of appeal was appurtenant could not be assigned, Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 A.C. 85 applied. Accordingly, all that could be assigned in the instant case would be the right to appeal; such a right was no more capable of assignment than was a remedy independently of the chose to which it related. Thirdly, that was consistent with the orthodox approach to whether a bankrupt had locus to appeal, Heath considered. Accordingly, a bare right of appeal of the sort under consideration was not property within the meaning of s.436. A right of appeal available to a bankrupt was one the bankrupt lost locus to bring or maintain once he was adjudicated bankrupt, because the only assets out of which the underlying liability could be met vested in the trustee, not because the right was a chose that vested in the trustee. The trustee had a statutory right, but not the obligation, to exercise any right of appeal that the bankrupt might have had from the moment the bankrupt was made subject to a bankruptcy order. Similarly, a right to appeal available to a company in liquidation could only be exercised by the office holder once appointed because he then became the only agent of the company entitled to do so, not because the right of appeal was treated as a property interest (see paras 24-31 of judgment). (2) (Obiter) Absent the agreement of the office holder, the court would not have sanctioned the assignment of the right of appeal to D. The assignment of the right to appeal without being able to assign the liability would place the office holder in a potentially invidious position. That was not a risk the court should sanction given the potential implications for creditors (para.32).

Directions given