Mohammed, R (on the application of) v London Borough of Southwark

A liability order for council tax may be challenged by judicial review against the billing authority where the authority caused the magistrates’ court to act on incorrect or legally insufficient information. For bankruptcy purposes, a future liability is a contingent liability only where an existing legal obligation arose before the bankruptcy, even if performance depends on a future event. Council tax accrues daily, but an obligation to pay an assessed sum on account may arise earlier under the Council Tax (Administration and Enforcement) Regulations 1992. Accordingly, an on-account liability for the remainder of the current financial year was a bankruptcy debt, whereas liability for a later financial year was not. The defective liability order was quashed.

The claimant was an undischarged bankrupt when the defendant council obtained a liability order for council tax relating to premises occupied by him. The order included a sum for the remainder of the 2005–2006 financial year, which the council accepted was a bankruptcy debt, and a further sum for the 2006–2007 financial year. The council had neither sought nor obtained the court’s permission to commence proceedings against the bankrupt under section 285(3)(b) of the Insolvency Act 1986. The claimant sought judicial review and argued that both sums were bankruptcy debts. The central issues were whether the council was a proper defendant, whether the order could be quashed, and when the relevant council tax liabilities arose.

1. The claim succeeded against the council. Although the liability order was made by the magistrates’ court, the statutory scheme required that court to rely on information supplied by the billing authority. The council was therefore properly made defendant to the judicial review. The court had power to quash the order because it resulted directly from an application which the council should not have made.

2. Under section 382 of the Insolvency Act 1986, a bankruptcy debt includes a debt or liability arising from an existing legal obligation at the commencement of bankruptcy. The obligation may be contingent on a future event, but a merely possible future debt is insufficient. The approach in R (Steele) v Birmingham City Council was applied. The distinction was between an existing obligation whose performance depended on a future event and a liability which would arise only if a future decision or event occurred.

3. Council tax liability under sections 2(1) and 6 of the Local Government Finance Act 1992 accrues daily according to residence. However, the Regulations require payment on account of the estimated chargeable amount and permit the unpaid balance to become payable following default. As at 25 November 2005, the claimant therefore had an existing obligation to pay the sum assessed for the remainder of the 2005–2006 year. That sum was a bankruptcy debt and could not be enforced outside the bankruptcy.

4. The position differed for the 2006–2007 year. At the bankruptcy date, no council tax liability had accrued for that year and no obligation to make an on-account payment had yet arisen. The later liability was therefore not a bankruptcy debt. It remained enforceable after discharge, although proceedings commenced while the claimant was undischarged would probably have required permission under section 285(3)(b).

5. The order was quashed rather than replaced through the Regulation 36A procedure. It was defective because it included a bankruptcy debt, duplicated an earlier order, and had been obtained without the required permission. The council was ordered to pay 75 per cent of the claimant’s costs, assessed at £500, with liberty to set that sum off against the outstanding 2006–2007 council tax.