Botleigh Grange Hotel Ltd v HMRC

A consent order is construed objectively, by reference primarily to its language in the context of the document as a whole. Its formal and public character is material where it concerns a winding-up petition. Surrounding circumstances and commercial common sense cannot be used to invent an ambiguity or displace clear language. Subjective intentions and pre-contractual negotiations are inadmissible for that purpose.

Where an order dismisses a petition without qualification, and its recitals record credits and payments equal to the whole petition debt, the natural inference is that the debt was discharged in full. A reservation of an underlying dispute must be expressed or clearly indicated. In its absence, no cross-claim based on the alleged overpayment survives.

HMRC presented a winding-up petition against the Company for unpaid taxes. Before judgment on the Company’s application to restrain advertisement and dismiss that petition, the parties obtained a consent order. It recorded relief under Corporation Tax Act 2010, section 458, and a further payment by the Company. It dismissed both the petition and the Company’s application, with no order as to costs.

HMRC later demanded a further sum. The Company sought to restrain a petition based on that demand, contending that the consent order had preserved its dispute concerning the earlier petition debt. The Deputy High Court Judge rejected that contention and dismissed the application. The central issue on appeal was whether the consent order discharged the earlier petition debt in full or preserved a cross-claim.

1. Appeal dismissed unanimously. Lady Justice Asplin, with whom Lord Justice Henderson and Lord Justice Kitchin agreed, held that the Deputy Judge correctly construed the consent order as discharging the whole debt underlying the first winding-up petition. No cross-claim therefore survived to defeat HMRC’s later demand.

2. The order had to be construed objectively. The court was to ascertain the meaning a reasonable person would give to the language chosen, read in its documentary, factual and commercial context. The exercise was unitary and iterative: the language, the document as a whole, admissible background and the practical implications of rival constructions had to be balanced. The guidance in [2015] AC 1619 and [2017] UKSC 24 applied.

3. A consent order is also a formal court document with public significance. In a winding-up context it is not merely a bilateral agreement. Its construction must reflect the court’s role and the possibility of supporting creditors. Clear operative language should not be undermined by searching for drafting defects or by relying on subjective intention or negotiations.

4. The operative provisions dismissed both the petition and the application without reservation. The recitals showed that the section 458 relief and the Company’s payment exactly equalled the amended petition debt. The natural inference was that the Company had discharged that debt in full. If the parties intended to preserve the allocation dispute, the order would have said so.

5. The preceding correspondence did not alter that conclusion. HMRC had not accepted the Company’s proposed conditional reservation of rights. Commercial common sense gave no clear indication favouring either construction and could not override the order’s natural meaning. The Deputy Judge’s speculation about HMRC’s subjective intention was erroneous but immaterial to his conclusion.

• Court of Appeal (Civil Division): dismissed the Company’s appeal and affirmed the construction of the consent order: [2018] EWCA Civ 1032.

• High Court of Justice, Chancery Division: Andrew Simmonds QC, sitting as a Deputy High Court Judge, dismissed the Company’s application to restrain the presentation and advertisement of a winding-up petition. No citation is stated in the judgment.