Business Rates - Selecting the Court for Recovery and Enforcement

Author: Simon Hill
In: Article Published: Sunday 22 March 2020

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Business Rates Enforcement - 2 Routes - Magistrates Court or Civil Court

Liability for National Non-Domestic Rates (‘NNDR’), commonly known as Business Rates is imposed by Local Government Finance Act 1988 (‘1988 Act’). Made under the 1988 (Schedule 9 and Section 62), there are the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations (SI 1989/1058; the ‘1989 Regs’), which contain many of the rules for applicable to the collection/recovery of due but unpaid Business Rates, as well as prescribing the enforcement mechanisms available. The 1989 Regs are limited to Business Rates; for the avoidance of doubt, the 1989 Regs do not apply to the other main type of local taxation, Council Tax[1].

Typically, a billing authority (sometimes called a charging authority) commences proceedings for due but unpaid Business Rates by making an application by way of complaint (the ‘Complaint’) to the Magistrates Court (that is, to a justice of the peace), requesting that a summons be issued, directed to the defendant (delinquent ratepayer), requiring the defendant to appear before the Magistrates Court to show why he/she has not paid the outstanding sum[2]. Where, within the Complaint proceedings, the Magistrates Court is satisfied that the sum has become payable by the defendant and has not been paid, the Magistrates Court will[3] accede to the Complaint and make a liability order in favour of the billing authority and against the defendant/delinquent ratepayer, for the unpaid sum (as well as a relatively modest additional sum to cover, in broad terms, the billing authority’s legal costs of bringing the Complaint).

However, there is another route to recovery open to a billing authority. 

Court of Competent Jurisdiction or Magistrates Court

Unlike Council Tax law, where Business Rates have been demanded but are unpaid, the billing authority has a choice as to which of two alternate routes to take to recover money due from the ratepayer. The 1989 Regs contain Part III entitled ‘Enforcement’ (regs. 10 to 23), and reg. 10 (2) reads:

‘A sum which has become payable to a billing authority under Part II and which has not been paid shall be recoverable under a liability order, or in a court of competent jurisdiction, in accordance with regulations 11 to 21.’ [bold added]

Further, reg 20 of 1989 Regs is entitled ‘Recovery in court of competent jurisdiction’ and reads:

‘(1) A sum which has become payable to a [billing authority] under Part II, which has not been paid, and in respect of which a liability order has not been made may (as an alternative to recovery under a liability order) be recovered in a court of competent jurisdiction.

(2) A liability order may not be made in respect of any amount in relation to which proceedings have been instituted under paragraph (1) above.’ [Bold added]

It is clear that these provisions create two alternative routes for recovery. Recovery made by attempted:
(1) in the Magistrates Court by way of a liability order or, alternatively, 
(2) in a court of competent jurisdiction, which will be by way of an ordinary civil judgment and order;

Further, a billing authority cannot use both routes. In respect to any Business Rates due but unpaid, instituting proceedings in a court of competent jurisdiction is a bar to a liability order being made in respect to the same sum; and vice versa, obtaining a liability order is a bar on recovering the said sum in a court of competent jurisdiction. As will be apparent, the bar on using the alternative route is applied at different points in the respective legal processes, but it is doubted that this will become material/pivotal often.

Though in a case relating to the law of limitation[4] in respect to council tax liability, these alternative Business Rates recovery routes were helpfully explained by Lloyd LJ in Bolsover District Council v Ashfield Nominees Ltd [2011] Bus. L.R. 492 (‘Ashfield Nominees’). At paragraphs 15 to 17, Lloyd LJ said:

…as for council tax, the relevant council could only apply for a liability order; it could not bring proceedings in the county court.

By contrast, for non-domestic rates, the relevant council has a choice. The relevant regulations are the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 (SI 1989/1058). The council may apply for a liability order for any unpaid rates which have been outstanding for no more than six years: see regulation 12. Alternatively it may bring proceedings in a court of competent jurisdiction: regulations 10(2) and 20(1). If it decides to institute proceedings in such a court, it may not then apply for a liability order.

If, having proceeded in the county court or the High Court, the council obtains a judgment for a sum of non-domestic rates, it then has the various options by way of enforcement that are available generally.’

In The Queen on the Application of London Borough of Waltham Forest v Waltham Forest Magistrates' Court v Yem Yom Ventures Limited [2008] EWHC 3579 (Admin)(‘Yem Yom’), David Holgate QC Sitting as a Deputy High Court Judge said, at paragraph 29:

‘As regards enforcement, two routes are availabile (sic) to the local authority, the second of which is civil recovery dealt with by regulation 20. That, in summary, provides that a sum payable under Part II is recoverable in a civil court but only as an alternative to seeking a liability order.’

Use has been made of this alternative route. By way of example, civil proceedings for (allegedly) due but unpaid Business Rates were issued in:

(1) North Somerset DC v Honda Motor Europe Ltd [2010] EWHC 1505 (QB) (‘Somerset v Honda’). North Somerset DC sought judgment for unpaid Business Rates against 2 car companies using the Royal Portbury Docks for the import and expert of vehicles, as well as against a property owner who developed office premises on a business park. 

(2) Rossendale Borough Council v Hurstwood Properties (A) Limited; Wigan Council v Property Alliance Group Limited [2017] EWHC 3461 (Ch)[5] ('Rossendale'). Rossendale BC and Wigan BC challenged a Business Rates mitigation/avoidance scheme in the High Court of Justice, Chancery Division, Liverpool District Registry. 

Rational
As to why 2 alternative routes are available for recovery for Business Rates, Lloyd LJ in Ashfield Nominees said, at paragraph 16:

‘I dare say that the reason for allowing ordinary civil proceedings in the case of non-domestic rates is that the amounts might in some cases be very large, and that possibly more complex issues might arise which could not conveniently be dealt with in the magistrates' court.’

It is possible to think of some other possible advantages, and obvious disadvantages, to commencing ordinary civil proceedings in the County Court/High Court for unpaid Business Rates. 

Advantages and Disadvantages to Court of Competent Jurisdiction Route
Briefly one could note here that:
(1) the Magistrates Court is able to deal with cases in bulk and will generally be much cheaper as a result; 
(2) the County Court/High Court, operating under the CPR, have much more detailed procedural rules. This can be beneficial when needed (for instance, in Rossendale, there was an application to strike out the claim under CPR r.3.4.) but with increase formalities and structure, come increases costs;
(3) the County Court/High Court has greater discretion on how costs orders are imposed on the parties. Section 64 of the Magistrates Court Act 1980 and section 52 of the Courts Act 1971 are inflexible on who may be subject to a costs order (though quantum is based on what is ‘just and reasonable’). 

But an important consideration might also be in respect to what enforcement mechanisms each court offers, should the liabilty order/order remain unpaid.

A Comparison: The Enforcement Mechanism Options Available on Each Route
The enforcement mechanisms for each alternative route are prescribed by law. 

Where the liability order route is taken, only those enforcement mechanisms set down in the 1989 Regs are available to the billing authority. Reg.13(3) of the 1989 Regs makes it clear that a liability order may only be enforced in accordance with this part of 1989 Regs. Reg.13(3) reads:

‘The amount in respect of which a liability order is made is enforceable in accordance with this Part; and accordingly for the purposes of any of the provisions of Part III of the Magistrates' Courts Act 1980 (satisfaction and enforcement) it is not to be treated as a sum adjudged to be paid by order of the court.’

Confusingly, there are two Part IIIs being referred to here, one being made the applicable enforcement provisions, the other being excluded from being applicable:

(1) Part III in the statutory instrument, the 1989 Regs, contains the applicable enforcement provisions[6]; and
(2) Part III in the statute, Magistrates’ Courts Act 1980 (so including section 87 of the Magistrates Court Act 1980), does not contain the applicable enforcement provisions.

Those 1989 Regs, Part III enforcement provisions[7] are:

a. Reg. 14, entitled ‘Enforcement by taking control of goods';

b. Regs. 16 and 17, entitled ‘Commitment to prison’ and  ‘Commitment to prison: further provision’;

c. Reg. 18, entitled ‘Insolvency; and

d. Reg. 19, entitled ‘Relationship between remedies under a liability order’;

It will be noted that none of the above relates to:

(1) recognition of an award in the County Court, nor 

(2) enforcing through a charging order; 

A more expansive range of enforcement options are available with Council Tax. 

In the County Court/High Court, there is a wider range of enforcement mechanisms than in the Magistrates Court. 

(1) Third Party Debt Order;

(2) Attachment of Earnings Order;

(3) Charging Order;

(4) Taking control of goods;

As well as less used enforcement mechanisms. 

Repayment due to Ratepayer from Billing Authority
Where the billing authority and ratepayers roles are, in a sense reversed, and the billing authority owes the ratepayer money, it is noteworthy that the 1989 Regs only give one option for recovery to the ratepayer. Where a ratepayer is due a repayment under a provision in Part II to the 1989 Regs, the 1989 Regs do not provide the ratepayer with the same choice as given to the billing authority. As per reg. 22 of the 1989 Regs, the ratepayer is limited to bringing proceedings for repayment in a court of competent jurisdiction (see reg.22 entitled ‘Repayments’). The ratepayer does not have the option of commencing proceedings in the Magistrates Court for a liability order against the billing authority. 

Conclusion 
A billing authority chasing due but unpaid Business Rates has an initial choice as to where to commence recovery proceeding - between opting for: (1) the Magistrates Court and seeking a liability order; and (2) the County Court or High Court (the ‘court of competent jurisdiction’), and seeking a ordinary civil judgment and order. Each route has its own advantages and disadvantages to consider, both in terms of efficiency, costs, depth of procedural rules, options for costs orders, and enforcement mechanism options should the amount remain unpaid. 

SIMON HILL © 2021

BARRISTER

33 BEDFORD ROW

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1] The two parts to local taxation, Business Rates, and Council Tax, are separate and distinct, each having a separate legal basis:

a. Council Tax liability is imposed by Local Government Finance Act 1992. The Council Tax (Administration & Enforcement) Regs 1992 (SI 1992/613) apply to enforcement, and these 1992 Regs were made under section 14 and Schedule 4, paragraph 1, of the 1992 Act; and

b. Business Rates liability is imposed by Local Government Finance Act 1989. The Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations (SI 1989/1058) apply to enforcement, and these 1989 Regs were made under Schedule 9 and Section 62 of the 1989 Act.

[2] Regulation 12 of the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989/1058 is entitled ‘Application for liability order’ and reads:

‘(1) Subject to paragraph (3), if an amount which has fallen due under regulation 8(2) in consequence of such a failure as is mentioned in sub-paragraph (a) of that provision is wholly or partly unpaid, or (in a case where a reminder notice is required under regulation 11 ) the amount stated in the reminder notice is wholly or partly unpaid at the expiry of the period of 7 days beginning with the day on which the notice was served, the [billing authority] 1 may, in accordance with paragraph (2), apply to a magistrates' court for an order against the person by whom it is payable.

(2) The application is to be instituted by making complaint to a justice of the peace, and requesting the issue of a summons directed to that person to appear before the court to show why he has not paid the sum which is outstanding.

(3) Section 127(1) of the Magistrates' Courts Act 1980 does not apply to such an application; but no application may be instituted in respect of a sum after the period of 6 years beginning with the day on which it became due under Part II.

(4) A warrant shall not be issued under section 55(2) of the Magistrates' Courts Act 1980 in any proceedings under this regulation.

(5) The court shall make the order if it is satisfied that the sum has become payable by the defendant and has not been paid.

(6) [An order made pursuant to paragraph (5) shall] 2 be made in respect of an amount equal to the aggregate of–

(a) the sum payable, and

(b) a sum of an amount equal to the costs reasonably incurred by the applicant in obtaining the order.

(7) Where the sum payable is paid after a liability order has been applied for under paragraph (2) but before it is made, the court shall nonetheless (if so requested by the [billing authority] 1 ) make the order in respect of a sum of an amount equal to the costs reasonably incurred by the authority in making the application.’

[3] Regulation12(2) and 12(5) of Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989/1058 provide:

‘(2) The application is to be instituted by making complaint to a justice of the peace, and requesting the issue of a summons directed to that person to appear before the court to show why he has not paid the sum which is outstanding.

(5) The court shall make the order if it is satisfied that the sum has become payable by the defendant and has not been paid.’

[4] In Bolsover District Council v Ashfield Nominees Ltd [2011] Bus. L.R. 492, Lloyd LJ did consider litigation in relation to Business Rates. Albeit his comments are obiter, LLoyd LJ said, at paragraph 17:

‘…the fact that there are two different routes in that case, one of which is identical to that which we have to consider, seems to me to be illuminating. No doubt, if the council uses the option of ordinary civil proceedings to recover arrears of non-domestic rates, the claim would be subject to section 9 of the Limitation Act, and only the last six years' arrears could be recovered. Correspondingly, if the council uses the other option of going to the magistrates' court for a liability order, it can only obtain such an order in respect of non-domestic rates that fell due within six years before the application to the magistrates' court. At that stage, therefore, the two alternative courses are treated identically for limitation purposes.’

[5] Judgment affirmed on appeal [2019] EWCA Civ 364. Appeal to Supreme Court outstanding.

In Rossendale Borough Council v Hurstwood Properties (A) Limited [2017] EWHC 3461 (Ch), HHJ Hodge QC (Sitting as a Judge of the High Court), variously said:

At paragraph 5:

‘The two claims are but two of a large number of very similar sets of proceedings which are currently before the Liverpool District Registry of the Chancery Division. Alexander Whyatt act for the respective Claimants to these proceedings.’

At paragraph 22:

‘[Solicitor for the claimants local authorities] issued the two claims on behalf of the respective local authorities. The brief details of claim endorsed on the front of the claim forms describe the claims as being for underpaid and/or unpaid national non-domestic rates that are claimed pursuant to the Local Government Finance Act 1988. In short, by those claims, each local authority seeks to challenge the efficacy of the schemes utilised by the Defendants, and to make them liable to the business rates which they would otherwise have avoided by use of the schemes.'

Between paragraphs 23 to 27, the Judge notes aspects of the Particulars of Claim, including the relief sought.

At paragraph 28:

‘The particulars of claim then go on to set out the relevant provisions of the 1988 Act and Regulations made under it governing the collection of business rates.’

At paragraph 34 he moves on the Defence, and at paragraph 36 onwards he discusses the application to strike out the claim.

[6] The Explanatory Note to the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations (SI 1989/1058)(‘1989 Regs’) describes Part III to the 1989 Regs are follows:

Part III (regulations 10 to 23) makes provision for the enforcement of sums due under Part II. Amounts payable to a charging authority may be recovered under a liability order made by a magistrates' court (regulations 11 to 13), following the making of which the charging authority may levy distress (regulation 14 and Schedule 3), apply for the commitment of the debtor to prison if there are insufficient goods on which to make a levy (regulations 16 and 17), or prove the debt in insolvency (regulation 18). As an alternative to recovery under a liability order, a charging authority may bring proceedings in a court of competent jurisdiction (regulation 20). Amount which are repayable to a ratepayer are also recoverable in a court of competent jurisdiction (regulation 22). Regulation 23 precludes matters which may be raised by way of appeal to a valuation and community charge tribunal being raised in proceedings for recovery under Part III, provides for the proof of contents of rating lists, and provides for the case where the amounts required under a notice given under Part II are adjusted after a liability order has been made.’

[7] For completeness, it is right to note that, strictly speaking, insolvency is not enforcement of a debt.