Botleigh Grange Hotel Limited v HMRC

The Court of Appeal considered the proper construction of a consent order which dismissed a winding up petition and whether that order preserved a cross claim relied on by the company. The court applied the objective approach to construction, treating the consent order as a formal court document with public significance and construing its operative words in their factual and commercial context. The recitals, read with the operative terms, showed that the sums allowed under section 458 Corporation Tax Act 2010 together with the payment made by the company equalled the amended petition debt and, absent qualifying wording preserving the dispute, the reasonable inference was that the petition debt was discharged in full. The court therefore held there was no surviving cross claim to set off against a later demand and dismissed the appeal.

The appellant company operated a hotel and faced a winding up petition presented by HMRC in January 2014 (the First Winding Up Petition). The petition was amended and the petition debt increased. The company applied to restrain advertisement and dismiss the petition; a hearing before Stuart Isaacs QC took place on 22 January 2016. Prior to judgment the parties engaged in correspondence and settlement discussions, in which HMRC recorded allowance of a section 458 reclaim and stated a balance figure, and the company offered to pay the balance subject to reserving its rights to dispute the petition debt. A consent order dated 23 February 2016, approved by Mr Isaacs QC, dismissed the First Winding Up Petition and recorded that HMRC had allowed the section 458 reclaim and that the company had paid a specified sum to HMRC.

Subsequently HMRC served a further demand in March 2016. The company applied to restrain presentation and advertisement of any petition based on that demand, asserting that the consent order had preserved an unresolved dispute and that a cross claim in the company’s favour remained which exceeded the March demand.

The case reached the Court of Appeal on appeal from the High Court (Mr Andrew Simmonds QC sitting as a Deputy High Court Judge). The single issue on appeal was the construction of the consent order and whether it preserved the company’s cross claim. The court framed the relevant issue as one of objective construction of the Consent Order in its documentary, factual and commercial context, applying the authorities on contractual and court-order interpretation (including Arnold v Britton and Wood v Capita) and acknowledging Companies Court practice about not ordinarily deciding merits of petition debts but also that the court retains a discretion to do so.

The court’s reasoning was that the operative wording of the Consent Order dismissed the petition and related applications with no costs order and, when read with the recitals which recorded the section 458 reclaim and the company’s payment (sums which together equalled the amended petition debt), the natural and ordinary meaning was that the petition debt had been discharged in full. There was no express qualifying wording preserving the dispute and the surrounding correspondence did not require a different interpretation. The court rejected the submission that the consent order was ambiguous or that the parties’ subjective intentions or pre-contractual negotiations should be used to alter the natural meaning. The appeal was dismissed.

Appeal dismissed. The consent order was objectively construed as dismissing the First Winding Up Petition and discharging the petition debt in full; there was no reserved dispute or surviving cross claim. The judge’s construction was therefore upheld.

Appeal from the High Court of Justice, Chancery Division (Mr Andrew Simmonds QC sitting as Deputy High Court Judge). The underlying application had been heard before Stuart Isaacs QC on 22 January 2016; the consent order was made on 23 February 2016. The Court of Appeal delivered judgment on 9 May 2018 ([2018] EWCA Civ 1032).