Challenging a bankruptcy petition based on disputed liability orders (Tower Hamlets London Borough v Naris)

Challenging a bankruptcy petition based on disputed liability orders (Tower Hamlets London Borough v Naris)

Daniel Webb, barrister at Selborne Chambers, examines a High Court decision concerning a bankruptcy petition which the debtor opposed on the basis that a certain number of the liability orders made against him (on which the petition was based) presented a miscarriage of justice.

Tower Hamlets London Borough v Naris [2019] EWHC 886 (Ch), [2019] All ER (D) 63 (Apr)

What are the practical implications of the case?

Chief Insolvency and Companies Court Judge Briggs reiterated the test for when a bankruptcy court would be prepared to look behind a judgment debt on the grounds of miscarriage of justice. Drawing on the dictum of Etherton J (as he then was) in Dawodu v American Express Bank [2001] BPIR 983, [2001] All ER (D) 251 (Jan), it was stated that the debtor would have to provide evidence that there was no properly conducted judicial process and demonstrate that, had there been a properly conducted judicial process, it would have been found—or very likely would have been found—that nothing was in fact due to the claimant.

Tower Hamlets London Borough v Naris suggests that this test is a high one. It was not met where the liability orders for unpaid council tax and non-domestic rates were made following service in accordance with relevant legislation, and a properly conducted legal process. Thereafter, the liability orders became legally enforceable debts. While the appeal against them failed for lack of promptness and the appeal court did not hear the debtor’s substantive defence, the judge held that this did not equate to an unfair hearing or a miscarriage of justice.

Perhaps more fundamentally, Tower Hamlets London Borough v Naris also suggests that the test is not likely to be met where the debtor admits a debt in excess of the bankruptcy level (presently £5,000) which has not been paid, secured or compounded for.

What was the background?

The debtor, Mr Naris, was subject to eight liability orders, which formed the basis of London Borough of Tower Hamlets’ (LBTH) bankruptcy petition against him. Mr Naris accepted liability for three of the liability orders, which were all for council tax for a property at 53 Barnfield Place. Mr Naris also accepted liability for further liability orders, which were for non-domestic rates for a property at Unit 3, 100 The Highway (the Highway). Mr Naris thereby accepted that £9,460.91 was due.

The remaining liability orders were all for the Highway and totalled £75,592.91. Mr Naris disputed liability for these, not accepting that ‘there exists any such address’ or that he occupied it. This was even though he accepted the two other liability orders which were based on occupation of the same address.

Mr Naris put forward a story which the judge described as ‘confused’, according to which he purportedly sub-let part of the demised property to a company which he owned, and further sub-let to another company he majority owned. Mr Naris said that he had not received any rates demands and contended that LBTH had sent them to Unit 4, 100 The Highway—the wrong address.

Having tried and failed to set aside the three disputed liability orders in the magistrates court, Mr Naris appealed twice. Both were dismissed for failure to appeal promptly, within a reasonable time.

What did the court decide?  

The judge concluded that there was no miscarriage of justice and the bankruptcy order was accordingly made. There had been a properly conducted judicial process, and even if there had not been, the judge would not have found that less than £5,000 was in fact due. Mr Naris had admitted liability for liability orders exceeding £5,000.

Mr Naris’ contention that the Highway did not exist was found not to be credible. LBTH’s evidence was that it was listed as a hereditament for the purposes of sections 41-42 of the Local Government Finance Act 1988. The Highway formed part of the demise in the lease to Mr Naris, a lease which Mr Naris himself relied on. He had never applied to the Valuation Office Agency to amend the entry in the list.

The court rejected Mr Naris’ argument that there was a miscarriage of justice because he was not properly served. Although no directions had been sought for cross-examination on service, it was open to the court to find Mr Naris’ evidence not to be credible because of inconsistencies. The weight of the evidence was inconsistent with Mr Naris’ position that the Highway did not exist as an address. It was found that LBTH had effected good service.

Regulation 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992, SI 1991/613 deemed the liability orders to constitute a legally enforceable debt unless and until set aside. Although Mr Naris had sought to appeal, his appeals had been dismissed. The fact that they were dismissed because Mr Naris had failed to act promptly—thereby precluding him from raising any other argument—did not equate to a miscarriage of justice in the judge’s view.

Also rejected was the argument that the liability order procedure was in contravention of Article 6 of the European Convention on Human Rights (ECHR) as effected by the Human Rights Act 1998. Mr Naris had given no reason why the tribunal had not been independent, impartial, or established by law. All Mr Naris said was that the Highway did not exist and that therefore he was not served. His breach of Article 6 ECHR argument was accordingly without foundation.

Interviewed by Devon Marshall.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.












Related Articles:
Latest Articles:
About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.