Revenue & Customs Commissioners v (1) Shaun Cassells (2) Nicholas Reed (2008)
A judge had erred in annulling a bankruptcy order on the basis that the Revenue's failure to notify the bankrupt that he had no tax liability amounted to an exceptional circumstance for the purpose of the Insolvency Act 1986 s.375. The bankrupt's claim that the Revenue's mistake meant that he had lost the opportunity to apply for annulment at an earlier date was not supported by the evidence, which showed that he had been largely inactive in relation to his bankruptcy.
The appellant commissioners appealed against a decision to rescind a bankruptcy order made in respect of the first respondent (C). C and his wife were in partnership as construction sub-contractors. C had failed to submit tax returns over a number of years. The Revenue issued a statutory demand for payment of his outstanding liabilities. No payment was received and no application to set aside the demand was made, so the Revenue obtained a bankruptcy order against him. The official receiver's report noted that C had a number of creditors and that his only asset was a half-share in his matrimonial home. Later, C filed his outstanding tax returns. The Revenue calculated the amount of tax he owed but mistakenly failed to give him credit for his sub-contractor tax deductions. C raised the issue of sub-contractor tax deductions a year later and the Revenue advised him that he had to make a separate application for credit in respect of those deductions. C did not pursue that claim. He refused to co-operate with the second respondent trustee in bankruptcy (T), who obtained an order suspending discharge indefinitely. On a reinvestigation of C's case, the Revenue discovered that he was entitled to sub-contractor tax deductions without the need for a further tax return and was entitled to an immediate refund which would expunge his liability to the Revenue. Consequently, R applied to rescind or annul the bankruptcy order. At the time, six of C's creditors had submitted proofs of debts to T. The judge annulled the bankruptcy order on the basis that the Revenue's failure to notify C that he had no tax liability amounted to an exceptional circumstance for the purpose of the Insolvency Act 1986 s.375, as that error had deprived him of the opportunity of applying for an annulment of the order under s.282(1)(a) or s.282(1)(b) at an earlier date. The Revenue submitted that (1) the failure of the judge to attach weight to a material factor was enough, of itself, to justify interfering with the exercise of judicial discretion under s.375; (2) the loss of an opportunity was insufficient, of itself, to justify the annulment of a bankruptcy order in circumstances where there was no evidence that C would have been successful in an annulment application at an earlier date; (3) the failure of the judge to give any consideration to the prejudice that would be caused to the remaining, legitimate creditors in light of the lapse of time since the grant of the order justified the interference with the exercise of his discretion under s.375.
(1) The grounds upon which an appellate court could interfere with the exercise of judicial discretion under s.375 were limited, Papanicola v Humphreys (2005) EWHC 335 (Ch), (2005) 2 All ER 418 and AEI Rediffusion Music Ltd v Phonographic Performance Ltd (Costs) (1999) 1 WLR 1507 CA (Civ Div) applied. However, questions of the appropriate weight to be given to material factors under consideration were not sufficient, of themselves, to justify the interference with discretion under s.375 by an appellate court; otherwise, there would be no restriction on an appellate court's ability so to interfere, G v G (Minors: Custody Appeal) (1985) 1 WLR 647 HL distinguished as the error there required further explanation in the circumstances. (2) The judge's basis for annulling the order was only valid if there was evidence from which it could be inferred that C would have applied for an annulment at the earliest possible date once he had been informed of the Revenue's mistake. However, there was no such evidence. In fact, C had repeatedly shown his inaction in this respect: he had never challenged the validity of the Revenue's debt or the order once made, and had never claimed his entitlement to sub-contractor deductions. The inference was that he would not have applied for annulment of the order at the earliest possible date. In any event, an application to annul, made at the earliest possible date, would have failed under s.282(1)(a) on the basis that, at the time the order was made, it was premised on a legally enforceable debt, and under s.282(1)(b) as he would have been unable to secure all his debts. Furthermore, even if C could have satisfied the above conditions, he would still have had to satisfy the court that in the exercise of his discretion the order should be made. Relevant to that would have been C's lack of co-operation with T and the fact that his discharge had been suspended indefinitely. Accordingly, in those circumstances, the loss of an opportunity to bring an earlier annulment action was insufficient, of itself, to justify the annulment. (3) The judge had failed to consider the existence of the remaining, legitimate creditors and the lapse of time, in years, since the imposition of the order. The existence of such creditors and the potential that their claims would become statute-barred as a result of the lapse of time were material factors that the judge was required to take into account before annulling the order, Benzon, Re (1914) 2 Ch 68 CA and Anglo Manx Group Ltd v Aitken (2002) BPIR 215 Ch D applied.