Nicolson v Grant Thornton UK LLP

On an appeal under section 17(4) of the Audit Commission Act 1998, the court reviews both the auditor’s conclusion on lawfulness and the exercise of the discretion not to seek a declaration. The auditor’s decision is wrong where it contains an error of law, is outside the range of reasonable decisions, or omits relevant factors. The court should be slow to interfere with an expert auditor’s discretionary judgment.

Under regulation 34 of the Council Tax (Administration and Enforcement) Regulations 1992, recoverable costs may include reasonably incurred administrative costs, legal fees, out-of-pocket expenses and appropriate overheads. A reasonable average cost calculated from aggregate enforcement costs may be used; exact equivalence with the cost of each individual case is unnecessary. A deterrent effect does not invalidate otherwise reasonably incurred costs.

The appellant objected to Haringey Council’s accounts concerning a £125 charge imposed in connection with council tax summonses and liability orders. The appointed auditor reviewed the Council’s costing methodology, declined to apply for a declaration that the relevant account item was contrary to law, and declined to issue a public-interest report.

The appellant appealed against the decision not to seek a declaration. He argued that the auditor had failed to consider earlier practices, misapplied regulation 34 of the Council Tax (Administration and Enforcement) Regulations 1992, and acted irrationally. The central issues were the scope of the auditor’s audit, the meaning of reasonably incurred enforcement costs, and the proper approach to an appeal under section 17(4) of the Audit Commission Act 1998.

1. The appeal was dismissed. There was no right of appeal against the auditor’s separate decision not to issue a public-interest report under section 8 of the Audit Commission Act 1998.
2. The auditor’s audit remit was confined to the Council’s accounts for the year ending 31 March 2014. Earlier facts could be relevant to that year’s accounts, but earlier accounting items were outside the auditor’s jurisdiction.
3. Regulation 34 of the Council Tax (Administration and Enforcement) Regulations 1992 permits recovery of costs reasonably incurred in the enforcement process. Administrative costs, legal fees, out-of-pocket expenses and appropriate overheads may be included. The costs may be calculated by aggregating reasonably attributable enforcement costs and dividing them by the number of summonses. Precise equivalence with the cost of each case is not required.
4. The earlier decision in R (Nicolson) v Tottenham Magistrates and London Borough of Haringey, [2015] EWHC 1252 (Admin), provided general guidance but did not determine whether the costs in the present case were reasonably incurred. A rigid rule excluding all costs incurred before the final decision to enforce was unjustified; necessary preliminary enforcement steps might qualify.
5. The reference in earlier Council material to charging the maximum possible costs meant the maximum costs reasonably incurred under the governing legislation. A deterrent effect did not make the charge unlawful. The Council’s evidence showed that the charge was directed to summons-related costs and did not include post-summons costs.
6. Applying the approach in R (Moss) v KPMG, [2010] EWHC 2923 (Admin), the court asked whether the auditor’s decision on lawfulness was wrong and, if so, whether the discretion not to seek a declaration was wrongly exercised. The auditor had considered the relevant factors, and its decision was neither wrong in principle nor outside the range of reasonable decisions.
7. The auditor was entitled to conclude that the methodology and charge were broadly reasonable and that there was little public-interest benefit in seeking a declaration. The respondent was awarded its costs, to be assessed. There was no order as to the Council’s costs.

The appellant appealed to the Administrative Court against the appointed auditor’s decision not to apply for a declaration under section 17(1) of the Audit Commission Act 1998. The court dismissed the appeal. The judgment also referred to related judicial review proceedings concerning the magistrates’ costs order: R (Nicolson) v Tottenham Magistrates and London Borough of Haringey, [2015] EWHC 1252 (Admin).