Okon v London Borough Of Lewisham

Where a bankruptcy petition is founded on domestic council tax liability orders, a substantive challenge to liability belongs before the Valuation Tribunal. The magistrates’ court cannot determine an issue which falls within the statutory appeal jurisdiction.

If a debtor has a bona fide and substantial intended appeal to the Valuation Tribunal, the bankruptcy petition may properly be adjourned pending its determination. The court must focus on that intended appeal, rather than an ineffective application to set aside liability orders. A later setting aside of a liability order generally supports rescission of the bankruptcy order, rather than annulment.

The London Borough of Lewisham presented a bankruptcy petition against Ms Okon based on council tax liability orders concerning three properties. A bankruptcy order was made in her absence and was confirmed by District Judge Bishop after a relisted hearing in the County Court at Croydon.

Ms Okon contended that she was not liable for the council tax because the properties were tenanted and disputed the status of one property. She had sought to set aside the liability orders in the magistrates’ court, but later understood that the substantive challenge had to be brought before the Valuation Tribunal. The appeal concerned the proper approach to the pending or intended tribunal appeal and whether the bankruptcy petition should have been adjourned.

1. The appeal was allowed conditionally. The orders of 2 and 9 June 2015 were set aside, the bankruptcy petition was adjourned, and the matter was remitted to the Croydon County Court, provided that Ms Okon undertook to prosecute her Valuation Tribunal appeal diligently and not dispose of interests in the properties without consent or permission.

2. The application to set aside the liability orders in the magistrates’ court was hopeless because no procedural defect in their making had been identified. Under section 16 of the Local Government Finance Act 1992 and regulation 57(1) of the Council Tax (Liability for Owners) Regulations 1992, the substantive issue of liability was for the Valuation Tribunal and could not be raised in liability-order proceedings.

3. The court followed Wiltshire Council v Piggin [2014] EWHC 4386 and agreed with the analysis in Yang v The Official Receiver, Manchester City Council [2013] EWHC 3577 (Ch). At the bankruptcy hearing the relevant question was whether the intended tribunal appeal was bona fide and substantial and whether the petition should be adjourned pending its outcome.

4. The court also adopted the approach in Royal Bank of Scotland v Farley, namely that a bona fide appeal or application pending when a bankruptcy petition is heard ordinarily warrants an adjournment. If the liability order is later set aside, the appropriate remedy is generally rescission under section 375(1) of the Insolvency Act 1986, rather than annulment under section 282(1)(a).

5. Although Ms Okon’s appeal was very late and her failure to disclose her residence affected the assessment of bona fides, the proposed appeal was bona fide and substantial. The delay was not substantially her fault, the debt was relatively modest, and continuing bankruptcy costs might eclipse the debt.

• High Court (Chancery Division): appeal from the County Court at Croydon allowed conditionally on undertakings; orders dated 2 and 9 June 2015 set aside and bankruptcy petition adjourned.
• County Court at Croydon: District Judge Bishop declined to set aside or disturb the bankruptcy order on 9 June 2015.
• Bankruptcy order: made on 2 June 2015 in Ms Okon’s absence; the order was stayed pending determination of the appeal by an order dated 7 July 2015.