Assets Recovery Agency v McCormack

A freezing order may support an existing cause of action even where the precise amount of tax owed has not yet been assessed. Liability for unpaid tax can arise before an assessment is served and before the period for payment of the assessed sum expires. Alternatively, the court may grant relief where there is a threatened breach of a presently performable statutory obligation. Equity may also grant quia timet relief where there is clear evidence of an enforceable liability and a real intention to defeat enforcement by dissipating assets.

The Director of the Assets Recovery Agency sought continuation of a freezing order made ex parte. The application arose from evidence suggesting that the defendant had received substantial undeclared income and had failed to pay tax. Under Part 6 of the Proceeds of Crime Act 2002, the Agency had assumed the relevant functions of HM Revenue and Customs.

The defendant accepted, for the purposes of the return hearing, that the other requirements for continuing the order and recovering unpaid tax were made out. He argued only that there was no existing cause of action and that the case did not fall within the recognised categories of quia timet relief. The central issue was whether the court had jurisdiction to continue the freezing order.

1. Existing cause of action. The court held that an existing cause of action for unpaid tax had arisen. The statutory duties to notify chargeability, account for income and make payments on account arose under sections 7, 8 and 59(2) of the Taxes Management Act 1970. The precise amount remained unquantified, but section 29 provided the mechanism for assessing the loss of tax. The cause of action did not arise only after an assessment had been served and the resulting 30-day payment period had expired.
2. Threatened breach. Alternatively, the court held that a freezing order could support a threatened breach of a presently performable statutory obligation. Applying the reasoning in Zucker v Tyndall Holdings plc [1992] 1 WLR 1127, the evidence established a threat that the defendant would fail to pay tax and dissipate assets against which the obligation could be enforced.
3. Equitable quia timet jurisdiction. The court further held that, if necessary, equitable relief was available on the principles identified in David John Rowland v Gulfpac Ltd [1999] LLR 86. Such relief requires clear evidence of a liability and a clear indication that the person liable will disregard it. The prima facie evidence of an intention to frustrate enforcement was sufficiently clear. The approach was consistent with the policy described in Re Anderson-Berry [1928] 2 Ch 290.
4. The freezing order was confirmed.

Not stated in the judgment.