Take care with your Consent Orders

A salutary reminder from the Court of Appeal on drafting Court orders.

Take care how you draft Consent Orders –  and especially where large sums of money due to HMRC are concerned! It is all too easy to prepare the Recitals and Body of such an order without fully considering the potential impact.

The recent case of Botleigh Grange Hotel Limited v Revenue and Customs Commissioners 2018 EWCA Civ 1032 is a perfect example of what can go wrong. The Court of Appeal considered the correct approach to construing Consent Orders. The CA’s view is that a Consent Order is a formal Court order with public significance and should not contain either drafting errors or ambiguities. It is not the job of the Courts to look for any failures to draft a document properly and to depart from the natural meaning of words. It was not therefore appropriate to introduce notions of commercial common sense and surrounding circumstances and use these to reduce the importance of the language of the order. Rather, the guidance offered from the interpretation of contracts should be used.

HMRC had brought a winding up petition against BG on the basis of unpaid taxes. BG disputed the sum claimed. Settlement discussions took place after which HMRC agreed that BG could reclaim some tax. HMRC said that it would allocate the reclaimed amount against other tax debts. This resulted in a balance of £152,000 which BG had to pay.

BG disputed the allocation of the reclaimed amount and requested HMRC to apply this to the undisputed elements of the petition debt. HMRC did not reply so BG wrote again. It stated that it continued to dispute the petition debt but would pay the £152,000 on the condition that HMRC would agree to the dismissal of the winding up petition.

A week later, the parties agreed a Consent Order. It contained the following salient points: (1) Recitals: that HMRC had presented a winding up petition; that BG had applied to dismiss it; that HMRC had allowed an application to reclaim: that BG had paid £152,000; the only supporting creditor had been paid. (2) Body: the winding up petition and BG’s application had been dismissed.

Subsequently, HMRC served another demand, this time for £221,000. BG applied to the Court to restrain the presentation and advertisement of a winding-up petition. Its case was that the effect of the Consent Order had been to dismiss the first petition but preserve as an ongoing unresolved dispute the question whether the first petition debt was payable in its entirety. It therefore alleged that it had a cross claim which would exceed the £221,000 claim.

Both the first instance judge and the Court of Appeal came to the same view. The words contained in the Body of the Consent Order were clear. They did not give rise to alternative meanings. There was no mention in the Recitals about the preservation of the dispute and the allocation of the reclaimed amount. The natural and ordinary meaning of the Body of the Consent Order, when taken with the Recitals was that the first petition was being dismissed without any reservation or condition. Any reasonable person would come to the conclusion that the petition was being dismissed in full because BG had discharged the amount of the amended petition. The Recitals would have recorded any intention to preserve the dispute and they did not do so.

BG’s case that the operative part of the Consent Order could be construed in more than one way was to invite the Court to look at surrounding circumstances. This was contrary to the Supreme Court judgment in Arnold v Britton 2015 UKSC 36 and should not be permitted.