London Borough of Tower Hamlets v Naris

A bankruptcy court may go behind a judgment debt only where there is fraud, collusion or a miscarriage of justice. The debtor must show both that the judicial process was improperly conducted and that, had it been properly conducted, nothing, or very likely nothing, would have been due.

A liability order constitutes a legally enforceable debt for bankruptcy purposes unless set aside through the applicable statutory procedure. Failure to appeal promptly, with the result that a substantive argument cannot later be pursued, does not itself amount to a miscarriage of justice or deny a fair hearing.

The London Borough of Tower Hamlets presented a bankruptcy petition based on eight liability orders. Derek Naris accepted liability for five orders but disputed three orders for non-domestic rates relating to premises described as Unit 3, 100 The Highway.

He alleged that the premises did not exist, that he was not liable because a company occupied them, that demands and proceedings had not been properly served, and that his unsuccessful appeals had not determined the substance of his defence. He also relied on the right to a fair hearing under Article 6 of the European Convention on Human Rights.

The central issue was whether the alleged defects amounted to a miscarriage of justice permitting the bankruptcy court to go behind the liability orders.

1. The petition was allowed and a bankruptcy order was made. The petition was true, and the debts had not been paid, secured or compounded for. The admitted liabilities alone exceeded £5,000.
2. The court applied the threshold stated in Dawodu v American Express Bank [2001] BPIR 983. A debtor seeking to go behind a judgment must show that there was no properly conducted judicial process and that, had there been one, nothing, or very likely nothing, would have been due.
3. The disputed premises were a hereditament liable to non-domestic rates and formed part of the property demised to Mr Naris. His evidence was inconsistent with his contention that the premises did not exist. The lease could not be relied on for some purposes and rejected for others.
4. Service had been effected in accordance with Local Government Act 1972, section 233, and the applicable non-domestic rating provisions. The evidence did not establish a service defect. The fact that Mr Naris failed to appeal promptly and was thereby unable to pursue a further argument did not convert the procedural rule into a miscarriage of justice.
5. Following Yang v Official Receiver and others [2018] 2 WLR 307, regulation 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992 deemed the liability orders to constitute legally enforceable debts unless and until set aside under the statutory procedure.
6. The Article 6 argument failed. The liability order procedure provided an opportunity for the debtor to explain why sums were not payable and to challenge an order by judicial review or appeal by case stated. The procedure therefore did not infringe the right to a fair hearing.

• Thames Magistrates Court: liability orders were made on 2 September 2014, 4 November 2014 and 10 September 2015.
• Thames Magistrates Court: an application to set aside the liability orders was dismissed on 3 March 2017.
• Appeal: dismissed on 27 April 2018 by District Judge McIvor.
• Further appeal: dismissed on 9 October 2018 by Sharp LJ and Warby J, on the ground that the appeal had not been brought promptly.
• High Court (Chancery Division): the bankruptcy petition was upheld and the bankruptcy order was made.