Set-off - Assignment of debt - Claimant seeking interest on award
Emblaze Mobility Solutions Ltd v Revenue and Customs Commissioners: Chancery Division (Mr Peter Leaver QC (Sitting as a Deputy Judge of the High Court)): 27 April 2012
In 2007, a bank appointed an administrative receiver over a company pursuant to the terms of a debenture. In January 2008, the receiver assigned the claimant company the benefit of an appeal against the disallowance of VAT input tax claimed by the company. In August 2010, the First-tier Tribunal (Tax and Chancery Chamber) (the FTT) pursuant to its decision on the appeal ordered the respondent Revenue and Customs Commissioners (the Revenue) to credit the claimant with VAT input tax in the disallowed sum.
In October 2010, the Revenue informed the claimant that it intended to set-off against the sum to which the claimant was entitled under the FTT decision, sums that it contended were owed to it by the company in respect of various historic taxes, including corporation tax and pay-as-you-earn (PAYE) contributions. The claimant commenced proceedings for judicial review of the Revenue's decision to set-off on the ground that the set-off was unlawful. In July 2011, it was ordered to be tried whether the Revenue could exercise a set-off and, if so, whether any sum payable pursuant to the assignment was payable subject to the set-off. In December 2011, the proceedings were transferred to the Chancery Division and it was further ordered to be tried whether the claimant was entitled to interest on the sum found due to it pursuant to the FTT decision. The instant proceedings concerned the hearing of those issues.
It fell to be determined: (i) whether the Revenue was entitled to statutory set-off; (ii) whether the Revenue was entitled to equitable set-off; (iii) whether the claimant had had a legitimate expectation that the sums would not be set-off based on the Revenue's publicly stated position that set-off would only be applied if the taxpayer consented; and (iv) whether the claimant was entitled to interest. Consideration was given to sections 130 to 133 of the Finance Act 2008 (the 2008 act) and section 27 of the Tribunal, Courts and Enforcement Act 2007 (the 2007 act).
The court ruled: (1) In respect of assignees, section 133 was clearly intended to impose a set-off on an assignee where no such set-off had been permissible prior to its enactment (see  of the judgment). In the instant case, there had been no general statutory right to set-off sums owed to the Revenue against sums owed by the Revenue to the company. The position was a fortiori in the case of an assignee, such as the claimant. That conclusion was consistent both with sections 130(8) and 133 of the 2008 act (see ,  of the judgment).
(2) The general, established, principle was that set-off was founded in simple convenience and fairness. It should be taken to apply generally to all liquidated cross-claims unless excluded by statute or contract. Further, the test for equitable set-off required that cross-claims were so closely connected with the claimant’s demands that it would be manifestly unjust to allow the claimant to enforce the payment without taking into account the cross-claim (see ,  of the judgment).
In the instant case, it was difficult to conclude that the liability to pay VAT and the right to receive repayment in respect of corporation tax were so closely connected as to bring into existence a right corresponding to the equitable right of set-off in closely connected contracts. Furthermore, it was not manifestly unjust to deny the right of equitable set-off in such circumstances. As an assignee, the claimant took subject to the equities.
However, as the Revenue had no right of set-off against the company, there could not be a right of set-off against the claimant. That conclusion became a fortiori when it was recalled that parliament had, since the date of the assignment, specifically enacted provisions for set-off both as between taxpayers and the Revenue and between assignees and the Revenue (see ,  of the judgment). Accordingly, the Revenue's claim to set-off the sum owed to it by the company in respect of corporation tax and PAYE against the claimant’s right as assignee to repayment of the VAT input tax would be dismissed (see  of the judgment). Melham Ltd v Burton (Collector of Taxes)  2 All ER 917 applied; Geldof Metaalconstructie NV v Simon Carves Ltd  4 All ER 847 applied.
(3) In the instant case, the statements in the consultation documents did not give rise to a legitimate expectation in the sense contended for by the claimant (see  of the judgment). Accordingly, the claimant’s position that it had had a legitimate expectation that the Revenue would continue to apply the practice that it had applied prior to the date upon which it had taken the assignment was dismissed (see  of the judgment).
(4) Simply because a sum was recoverable as if it were payable under the order of the court did not make a judgment: it merely stipulated the manner in which the order could be recovered or enforced (see  of the judgment). The claimant's claim for interest under section 27 of the 2007 act would be dismissed. Further, the claimant received a repayment supplement and was not, therefore, entitled to any further sum by way of interest (see ,  of the judgment).
David Chivers QC and Michael Patchett-Joyce (instructed by The Khan Partnership) for the claimant. Philip Moser QC (instructed by the Solicitor for the Revenue and Customs Commissioners) for the Revenue.