PART ONE

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

ADMINISTRATIVE COURTCO Ref: CO/ /2013

Before the Honourable Mr(s) JusticeBETWEEN:

XXX XXXXAppellant

and

NORTH EAST LINCOLNSHIRE COUNCILRespondent

Appellants Grounds of appeal(Draft)

1. The issues in this appeal arise from the provisions of the Council Tax (Administration and Enforcement) Regulations 1992 (the Regulations"). Part V of the Regulations deals with the billing of persons liable to pay Council Tax; Part VI deals with the enforcement of their liabilities to billing authorities such as the Defendant. Part V requires where the notice is issued before the beginning of the relevant year that liability be paid in 10 instalments, in accordance with Regulation 21 and Part I of Schedule 1 to the Regulations.2. Under Part VI, Regulation 33, a liability order cannot be applied for unless a reminder notice under Regulation 23(1) or a final notice, showing the amount for which the application is to be made, has been served. A final notice need not be served where a debtor fails to pay any instalments due within seven days of the issue of a reminder notice.3. Once a demand notice, that is, the Council Tax bill, has been issued and one or more of the statutory scheme instalments have become due and less than the full amount(s) has been paid, the billing authority must issue a reminder notice to the taxpayer giving seven days for the outstanding instalment(s) to be paid.4. Demand for payment in respect of tax year 1012/13 was such that the first payment was due April 1, 2012 with remaining instalments due on the first of each subsequent month with the final payment on 1 January 2013.5. Instalments were met in accordance with the demand notice up to and including Augusts payment. The following instalment due 1 September was missed triggering an auto-generated reminder dated 12 September 2012 warning that the account showed 85.52 overdue. The reminder continued as follows:This overdue amount, together with any other instalment that becomes due in the next 10 days, must be received by the 26th September 2012. If payment is not received in accordance with this request the instalment facility will be withdrawn and the total balance of 437.52 will become payable immediately...The final paragraph of relevance warned that:If payment is not received a summons will be issued without any further notice being given to you and you will incur 70.00 costs.

It is of central importance, so far as the matters giving rise to this appeal are concerned, to contrast the above paragraph with the corresponding text as was standard in the notice before costs were reviewed. The paragraph previously relevant to costs is stated as follows:If recovery action is taken there will be costs of 32.00 if a summons is issued, and further costs of 25.00 if an application is made to the Magistrates Court for a Liability Order.

The review had the effect of increasing the overall costs by 23% and because both charges had been consolidated into one, the summons rose by 120%. Advantages of front loading all costs to the summons stage, to which will be referred in detail later, commenced in April 2011 when changes were implemented. 6. It is not in dispute that the sum was not paid and no sum was paid. Therefore the total balance of 437.52 (unpaid balance of the estimated amount) had become payable immediately in accordance with Regulation 23(3) arising from the failure to pay within 14 days from the issue of the reminder notice. Regulation 23(3) provides as follows:(3) If, within the period of 7 days beginning with the day on which a reminder notice is issued, the liable person fails to pay any instalments which are or will become due before the expiry of that period, the unpaid balance of the estimated amount shall become payable by him at the expiry of a further period of 7 days beginning with the day of the failure.

7. Part VI, Regulation 34(1), provides that if an amount has fallen due under 23(3) Part V of the Regulations and remains unpaid in whole or in part, then the billing authority may apply to a magistrates court under the provision of regulation 34(2) for a summons to be issued, requiring the debtor to appear before the court to show why the sum stated had not been paid.8. Accordingly, the respondant was entitled to seek a liability order which it did by applying to the magistrates court for a summons on 10th October 2012 and on 17th October, a summons was served at the address of the defendant, in so far as relevant, the following terms:Complaint has been made before me, the undersigned Clerk to the Justices, by The Executive Director Business Services of North East Lincolnshire Council that you, being a person duly subject to and liable for Council Tax, have not paid the sum(s) set out below:

COUNCIL TAX

437.52

SUMMONS COSTS

70.00TOTAL AMOUNT PAYABLE

507.52

If the total amount outstanding as stated above including summons costs is paid to North East Lincolnshire Council before the date of the hearing, all further proceedings will be stopped.9. Regulation 34 further provides that if, after the summons has been issued, an amount is paid, equal to the unpaid balance of the estimated amount and an amount in respect of the costs incurred by the authority, then the authority must accept the payment and stop the proceedings. The relevant part being paragraph 5 which follows:(5) If, after a summons has been issued in accordance with paragraph (2) but before the application is heard, there is paid or tendered to the authority an amount equal to the aggregate of(a) the sum specified in the summons as the sum outstanding or so much of it as remains outstanding (as the case may be); and

(b) a sum of an amount equal to the costs reasonably incurred by the authority in connection with the application up to the time of the payment or tender,

the authority shall accept the amount and the application shall not be proceeded with.(6)....

10. The billing authority may not itself add an amount to the outstanding liability in respect of instituting proceedings, yet it stated that the total amount outstanding for which the defendant was liable included summons costs. The complaint had not been heard so adding 70 court costs was pre-empting the bench awarding the amount applied for. The power to award costs lies with the Court on hearing the complaint. Section 64 of the Magistrates Courts Act 1980, provides so far as is relevant, as follows:"(1) On the hearing of a complaint, a magistrates' court shall have power in its discretion to make such order as to costs(a) on making the order for which the complaint is made, to be paid by the defendant to the complainant;(b) ....as it thinks just and reasonable... (2) The amount of any sum ordered to be paid under subsection (1) above shall be specified in the order, or order of dismissal.....11. There was paid on 17th October 2012, the aggregate of the sum specified in the summons as the sum outstanding and a sum of an amount equal to the costs reasonably incurred by the authority in connection with the application up to the day of service of the summons. In accordance with Regulation 34(5), if the outstanding balance and an amount equal to reasonable costs incurred is paid or tendered to the authority, the application shall not be proceeded with.12. The billing authoritys head of income and payments was notified in writing on 17th October 2012 that the debt was settled. The payment was itemised as being 447.52 for outstanding council tax and 10 for an amount equal to reasonable costs, including a fee of 3 payable to the court in respect of instituting the complaint. It was queried whether the billing authority would pursue a liability order for a sum equal to the difference of the stated amount payable on its summons and the amount paid.13. There was no response other than acknowledgement of the 17th October correspondence emailed the same day, stating as follows:I acknowledge receipt of your e mail and attachment, which has been forwarded to our Court Enforcement Officers to deal with 14. The court was notified on 26th October 2012 that the liability had been settled and advised that unless the application for a liability order was withdrawn the complaint would be defended at the hearing of 2nd November. A summary supported several documents asserting that 70 was an unreasonable claim for costs and proposed in the following terms:....I trust the evidence will be sufficient that the court will question the reasonableness of NELCs claims and require that the council provide evidence to support the amount claimed by way of costs is no more than it reasonably incurs...The relevance of a government publication was brought to the courts attention (Council tax practice note 9: Recovery and Enforcement) which emphasised under heading liability orders that the amount claimed by way of costs in any individual case should be no more than that reasonably incurred by the billing authority. Paragraph 3.81 of the DoE document said, so far as relevant: 3.18.....The order will include the costs reasonably incurred by the authority in securing the order. Whilst it is likely that authorities will have discussed a scale of fees with the Clerk to Justices it should be recognised that the Court may wish to be satisfied that the amount claimed by way of costs in any individual case is no more than that reasonably incurred by the authority.15. Regulation 34 provides at paragraph 8 that the court shall, subject to an application by the billing authority, grant an order for the costs alone, where payment of the council tax has been made after the issue of a summons but before the liability order has been made by the court: (8) 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) make the order in respect of a sum of an amount equal to the costs reasonably incurred by the authority in making the application.16. There is no provision in regulation 34(8) for the court to make the order in respect of costs, where in addition to the sum payable, an element of costs is paid. Paragraph 8 provides that the court, if requested by the billing authority, shall make the order in respect of costs, in circumstances where only the sum payable is paid to the authority.17. The sum payable is defined as the outstanding liability (excluding costs). Regulation 34(7) confirms this as it describes the sum as one distinct part of an aggregate amount of which costs reasonably incurred is the other. Regulation 34 provides at paragraph 7 as follows:(7) An order made pursuant to paragraph (6) shall 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.

18. The appeal is concerned in circumstances where a reasonable sum of costs had also been paid, therefore the relevant provision under which costs were appropriate were those described under regulation 34(5) not 34(8). Nonetheless, the billing authority proceeded with the application and applied for costs under regulation 34(8) which the bench ordered in the sum of the standard 70 sought by the applicant.19. Costs under regulation 34(5) are raised in respect of instituting the application prior to any hearing and paid without an order if settled along with the sum payable before the hearing. Whereas under regulation 34(8) the court grants an order on the application being made, so include costs of bringing proceedings before the court. However, a 70 standard sum is imposed whether in respect of regulation 34(5) or 34(8), despite costs of instituting the application being in respect only of part of the total incurred. Individual costs raised under regulation 34(5) derive from the billing authoritys aggregate, split between however many defendants appear on the complaint list, which in 2011/12 averaged 970 for each of the 12 applications made that year. 20. The process is controlled automatically in accordance with parameters set in the Council Tax software package. The system compiles particulars of all account holders requiring issue of a summons. The complaint list is generated from the individual entries contained in the database (including the amount outstanding and costs to be applied for at the hearing) and delivered to the court where reviewed by a legal adviser who issues the summonses.21. As a budgetary measure, the billing authority proposed increasing overall costs and changing the composition so all costs, including those for making the application, would be imposed in respect of instituting the complaint. Approximately one quarter of account holders who are summonsed settle in full before the hearing, so front loading costs would largely account for the forecasted additional 188,000 each year it would generate.22. A case to argue that the total costs should not be incurred in respect of instituting the application is made in the Regulations as amended and applying to Welsh billing authorities. 23. A legislative provision for capping costs is set out in the Council Tax and Non-Domestic Rating (Amendment) (Wales) Regulations 2011. Though not applying in England, where there is no cap, they nevertheless amend the Regulations governing England and Wales. Rather than the cap itself which applies only in Wales, attention here is on the references made to paragraphs (7)(b) and (8) to regulation 34. Regulation 3 of the 2011 Welsh amendment provides so far as is relevant, as follows, (emphasis added): 3. (1) The Council Tax (Administration and Enforcement) Regulations 1992 are amended as follows.(2) In regulation 34 (application for liability order)(a) in paragraph (7)(b), after the order insert (which costs, including those of instituting the application under paragraph (2), are not to exceed the prescribed amount of 70);(b) in paragraph (8), after the application insert (which costs, including those of instituting the application under paragraph (2), are not to exceed the prescribed amount of 70);Clearly, cases proceeding to court and incurring costs under paragraph (7)(b) or (8) can include those of instituting the application. It cannot mean conversely that cases which are instituted but not prosecuted can include costs of making the application and obtaining the order. It is explicit in its references that those cases for which liability is settled prior to a hearing will only incur costs of instituting the application. Parliament must have intended that the regulations were formulated so as to provide a person issued a summons the opportunity to reduce the otherwise higher costs by settling liability before the hearing date.24. The Explanatory Memorandum to the 2011 Welsh amendment, prepared by the Welsh Assembly Government further reinforces the assertion that the law provides court costs at two stages. The Memorandum provides so far as is relevant, as follows (emphasis added):4.2. When council tax payers...fail to make their payments as scheduled in their demand notices, they will receive reminder notices, second reminder notices and final notices. Should they still fail to pay the amount outstanding or come to an agreement with the local authority, a summons may be issued for their appearance at the Magistrates Court. The issue of a summons adds a cost to the debtors account. 4.3. If the debtor is unable to pay the balance in full prior to the court hearing date they are required to attend court. The Council will request that the Magistrates Court grant a liability order for the debt in question. This procedure will incur a further cost for the debtor. 4.4. The Council Tax (Administration and Enforcement) Regulations 1992...provide that the costs added to the debtors account at these two stages should cover the costs that are reasonably incurred by the authority. However, the amount that is charged varies considerably between local authorities in Wales so taxpayers in some authority areas may pay up to twice as much as those in other areas.The opportunity arises for the council to apply appropriate costs firstly in respect of instituting the summons and secondly where the complaint has proceeded to court where the appropriate costs include additional expenditure in prosecuting the case.

25. In April 2011, after notifying the Magistrates Court of its decision to increase and front load court costs, the Billing Authority implemented the standard 70 sum. All account holders summonsed from then on routinely incurred the revised fee, even taxpayers who before the review only incurred part costs; i.e., those, who under regulation 34(5), settled in full before the hearing. All costs in respect of making the application and obtaining the order are now incurred by all taxpayers summonsed regardless of their cases going ahead. 26. Before the review, costs had in some respects been applied in line with the Regulations. The billing authority imposed a set amount of 32 under regulation 34(5), whereas if the case progressed to a hearing, a costs order would be made by the court in the sum of 57 (32 + 25) under either regulation 34(7) or if in respect of costs only, regulation 34(8). Therefore, only part costs equal to 56% of the total costs ordered on the complaint being heard were deemed to be incurred in respect of instituting the complaint.27. The following charts the changes that the summons and liability order costs have undergone over a period commencing 2000/01 through to 2011/12. 2000/01Summons 10

Liability Order 32.502004/05Summons 30

Liability Order 25

2001/02Summons 10

Liability Order 352006/07Summons 32

Liability Order 25

2002/03Summons 15

Liability Order 352011/12Summons 70

Liability Order 0.00

28. Costs appear arbitrarily split between what are termed the summons and liability order. The tendency to proportion costs in favour of the summons is evident with weight shifting over time to the more frequently incurred charge. In 2001/02 it was deemed only 22 per cent was incurred in respect of instituting the complaint (summons) whilst the following year this had risen to 30 per cent, and in 2006/07 considered to account for over a half of the total costs of securing the liability order. Asserting that it incurs the entire costs in respect of the summons enables the billing authority to obtain maximum revenue.29. There must be an accounting for why costs, once weighted in respect of the court hearing and having only a fifth attributed to instituting the complaint are all now incurred at that stage. A regime change in administration is unlikely to have contributed as regulations relevant to the application have gone unchanged over the period. The fee payable per entry on the complaint list to the Magistrates Court accounts for a small change in composition. This was increased by 2.30 in 2006/07 from 0.70 to 3 under the provision of the Magistrates' Courts Fees Order 2005, which came into force on 10/01/06 and would account for the summons costs rising by 2 in that year. The fee in respect of instituting the complaint has undergone no further changes to the level by any subsequent amendments to the Court Fees Order.30. There is no provision for the billing authority to impose costs for anything other than covering reasonably incurred expenditure. There are however, publicly available documents detailing how, by reviewing costs, it would benefit either from additional income and/or encouraging behaviour. Comparing council tax costs with those similarly imposed for Business Ratepayers allows for a clearer picture of how manipulating the level and/or composition has enabled this.Council Tax / Business Rates costs raised per summons and liability order:Council TaxBusiness Rates

SummonsLiability OrderSummonsLiability Order

2000/011032.501032.50

2001/0210353035

2002/0315353035

2004/0530254525

2006/0732254725

2011/127070

31. A review in 2001/02 disclosed that if the billing authority were to follow the trend of other councils by charging more in respect of Non-Domestic Rates than for Council Tax, the extra cost would encourage prompt payment. It was forecast that charging three times more for what had been identical costs would also improve cash flow with the overall effects of the review potentially generating additional income of 38k per annum. A report of the Director of Finance to the Cabinet Committee (Review of Recovery Costs 6 April 2001), details at paragraphs 4, 5 and 6, the relevant matter, as follows:"4. The proposal would be to increase by 2.50 to 35, the amount charged for a Liability Order for Council Tax debts. However, with regard to Non-Domestic Rates, the Summons cost would rise from 10 to 30 in addition to the 2.50 extra for a Liability Order.5. The decision to charge more in respect of Non-Domestic Rates is one which other local authorities are taking in increasing numbers. (There are two in this region currently, Bradford and Sheffield.) The reasoning behind this is that it is believed that some businesses deliberately delay payment of Rates as the penalty for late payment is so small in comparison to the amount that might be owed. The extra cost is seen as a way of encouraging prompt payment.6. If the proposal is accepted, then based on the number of Summonses issued and Liability Orders obtained in the current year, an extra 38,000 of additional cost income would be generated bringing the total to approximately 390,000.32. The cost of issuing a summons should only take into account the administration involved and not a deterrent element, as there is nothing in the legislation to support an increase in costs on this basis. Whether it was an effective measure to improve cash flow was immaterial because regulations make no provision that a penalty may be imposed. The law only provides for the billing authority to claim costs which have been reasonably incurred.33. The 2002/03 increase was detailed in a report to the Cabinet Committee identifying ways of funding additional resources to ensure the backlog of work that had arisen due to changes in the IT system were addressed. Recommendations were that the Council Tax summons cost be increased by 50% with immediate effect. The forecasted additional revenue would easily produce the 30k per annum that had been costed to pay for additional staff. The Director of Finances report (Revenues and Benefits Service Staffing Issues 8 November 2002), details the relevant matter, as follows:SUMMARYThe report identifies ways of funding additional resources to ensure the backlog of work that has arisen due to changes in the IT system are addressed.

RECOMMENDATIONS:

That Cabinet consider the following recommendations:

..... that the Council Tax establishment is increased by two members of staff.

that the Council Tax summons cost be increased from 10 to 15 with immediate effect.........14. As far as Council Tax administration is concerned it is suggested that, as an interim measure pending the full review of the establishment as agreed within the Best Value Review process, two additional staff be employed. These additional staff will not only assist in the clearing of the backlog of work but also in maintaining the day to day work at an acceptable level in order to improve the current level of recovery being achieved. The additional costs of these staff can be met by an increase in the level of summons costs from 10 to 15. This increase would produce additional income in excess of 30,000.

34. The billing authority seems to have used liability order applications as an instrument to manipulate income generated by the authority for purposes other than meeting costs incurred exclusively for the work attributable to instituting the complaint. The report implied that the billing authority could rely on at least 6,000 residents being caught per annum with a Summons thus raising in excess of the additional 30,000 required to fund two extra staff to clear the backlog of work caused by IT complications.35. Aside from inappropriately increasing costs to fund additional staff to clear the backlog, the figure used to base its calculations was unusually low and if based on a typical number of summons served each year would have needed only half the amount it was increased to pay for the two proposed members of staff. However, the figure based on the subsequent three years average was not 6,000 but 12,277 householders liable for the summons penalty. The 50% or 5 increase in the Summons fee would therefore pay for in excess of four staff; more than double what it was looking to fund by residents caught out with these penalties.Council Tax costs raised per summons, number and total raisedCostsNo of SummonsesSummons costs raised

2001/021011,465114,650

2002/03156,14092,100

2003/041510,632159,480

2004/053013,995419,850

2005/063012,205366,150

36. There is no recorded information to justify the summons costs doubling to 30 in 2004/05. However, if like the previous increase, it was to fund additional staff, then the 260,370 raised additional to the previous year would be sufficient to fund another seventeen, based on the previous employment costing.37. Costs have only ever increased, suggesting that measures have never been taken that would improve efficiency and reduce incurred expenditure. This seems unlikely given the increasing trend for councils to share resources, outsource services and exploit the latest technology. It would suggest too that volumes of bulk applications have remained constant. For example, if volumes increased significantly, it would be reasonable to expect lower costs due to economies of scale. The standard costs sought, that is, each defendants share of the total, would require adjusting to ensure no profit was made. However, costs raised by the billing authority increased by 67% in respect of figures obtained in 2013 compared with the same period in 2012. No adjustment was made to the standard costs sought, and the court continued to award costs which were applied for.38. Changes to the benefit system are the likely cause for the significant increase in numbers unable to meet council tax payments. Claimants, who before the reforms, where exempt from paying any council tax must now pay 8.5% of their bill because of reduced funding. Incomes for these people must therefore have fallen below levels which the government once deemed was a minimum amount needed to live on frugally. Whatever is behind the soaring numbers, costs raised have escalated as the billing authority has opted to seek court orders to enforce payment in those cases.39. In anticipation of there being an increase in summonses issued from when the benefit reforms were implemented, data was obtained for the purpose of monitoring this. Costs raised for the months May to August in 2012 (before the reforms) was 333,480, whilst for the same months subsequent to the reforms the figure increased by around 67% to 556,220.40. Local Authorities can apply for costs which they have reasonably incurred to bring the matter to court, rather than a sum being fixed in law. The procedure at both Leeds Magistrates Court and Grimsby Magistrates Court is that the local authority writes to the court with the proposed reasonable charges and these charges are considered by the Justices Clerk and the Judicial Leadership and Management Group. If the charges were considered unreasonable for the work carried out then the Justices Clerk would express that opinion and would also advise the Magistrates hearing the cases accordingly. The amount of costs awarded is at the discretion of the Justices.41. The number of householders receiving council tax summons has substantially increased since changes to the benefit system took effect in April 2013. Additional costs raised due to this could not have been considered so inconsequential by the parties involved that they deemed no preventative measures were necessary to mitigate the risk of exceeding incurred expenditure.42. To ensure a surplus is not available to fund other expenditure, e.g. Council Tax administration, the noticeably higher application volumes since the removal of council tax benefit need to be met with the standard sum of costs substituted with a lower amount. This follows the basic principle that the councils incurred expenditure must be divided between a greater number of defendants. To do as councils have, i.e., continue having Magistrates rubber stamp the same costs must have elevated income generated to levels exceeding expenditure. 43. It is on this principle that some councils justify charging higher levels to Business Ratepayers. Reigate & Banstead Borough Council with typically fewer applications than for Council Tax. It follows if the court was mindful of factors influencing costs, the amount awarded would need adjusting downwards where numbers on the complaint list exceeded certain levels. Overlooking the bulk nature of the process gives councils the opportunity to significantly profit from costs ....the basic differences are that there are two separate teams dealing with the issuing of Council Tax and Non Domestic Rates summonses. As there are fewer Non Domestic Rates summonses the cost per summons is greater than Council Tax.44. []45. []

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