HM Revenue & Customs v Xicom Systems Ltd

Under County Courts Act 1984, the High Court has jurisdiction to permit set-off between a High Court order and a county court judgment, including where the order is against the Crown. The statutory payment regime in the Crown Proceedings Act 1947 does not exclude that jurisdiction. The statutory set-off is discretionary and differs from legal or equitable set-off. In the ordinary case, where the judgment debtor cannot pay, set-off should be permitted unless persuasive circumstances point the other way. The court may take account of serious procedural misconduct connected with the debt, but must balance that against the justice and practical consequences of refusing set-off.

HM Revenue and Customs sought leave under section 72 of the County Courts Act 1984 to set off £30,500 owed to Xicom under a High Court costs order against Xicom’s county court judgment debt of £104,654.58 for unpaid PAYE and national insurance contributions.

Xicom challenged the court’s jurisdiction and, alternatively, asked the court to refuse relief in its discretion. The costs arose from HMRC’s conduct of VAT tribunal proceedings, including repeated failures to comply with directions. The central issues were whether section 72 applied to the costs order, whether the Crown Proceedings Act 1947 prevented set-off, and how the discretion should be exercised.

1. Jurisdiction. The SCCO’s order requiring HMRC to pay the assessed tribunal costs was an order of the High Court. It therefore fell within section 72. The section permitted either the High Court or the relevant county court to grant leave to set off the sums payable under the two orders.
2. The fact that the original costs award was made by the VAT tribunal did not prevent section 72 applying, because the operative order for payment was made by the SCCO. Nor did any possible jurisdiction of the SCCO prevent a fresh application to the High Court.
3. Section 25 of the Crown Proceedings Act 1947 created a statutory mechanism for payment of orders against the Crown, but did not exclude set-off. Section 21(1), requiring the court to have the powers available in proceedings between subjects, enabled the court to permit set-off involving the Crown.
4. The section 72 procedure was discretionary. It was not legal or equitable set-off operating as a defence to a claim, nor an exercise of the costs jurisdiction under section 51 of the Supreme Court Act 1981. The court was required to consider all the circumstances and the established High Court practice.
5. Where one party had no realistic prospect of paying its judgment debt, it would ordinarily be contrary to good sense and justice to require the other party to pay its smaller debt instead of setting it off. That consideration favoured HMRC. Xicom’s complaints about the VAT investigation and suspension of rebates could not be resolved on this application and were not relevant to the discretion. The suggested risk to Xicom’s solicitors was also unsupported by the conditional fee agreement.
6. HMRC’s repeated procedural defaults and later conduct could justify refusing set-off as a means of marking the importance of proper litigation conduct. On balance, however, set-off was permitted. HMRC was warned that future costs orders resulting from tardy or inadequate conduct might not be treated similarly.

First-instance decision. No earlier appellate decision is stated in the judgment.