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Overview Of HMRC Win Proof Of Debt Appeal
Trustee In Bankruptcy’s Rejection of HMRC Proof Of Debt Reversed. A technical argument was not preferred to fairness.
HMRC v Sanders
The case of Revenue And Customs v Sanders  EWHC 1843 (Ch) arose from a taxpayer who had sought a c.£5 million tax repayment to which the parties agreed should not have been claimed.
The taxpayer died and was subject to an Insolvent Administration Order.
The matter hinged on a technicality as to whether or not the HMRC Closure Notice complied with Section 28A of Taxes Management Act 1970.
The Trustee in Bankruptcy obtained a Counsel’s Opinion which he waived privilege over. He followed the advice and rejected HRMC’s claim in the estate. HMRC appealed the rejection and the Court held the decision ought to be reversed.
The Court was unconvinced by the proposition that the Closure Notice was sufficiently defective to support the rejection of the Proof of Debt. Indeed the judge considered it was not defective but if it was that Section 114 of the Taxes Management Act 1970 aided HMRC accordingly.
Furthermore, the Court said also that the fairness principles arising from Ex parte James (ex parte Condon) (1874) LR 9 Ch App 609 would assist HMRC in any event.
Adopting the test now clarified in MacNamara, it would be clearly wrong for the court to stand idly by. If I were to accept the submissions of the Respondent, the fundamental principle identified by David Richards L.J. that the court will not permit its officers to act in a way that it would be clearly wrong for the court itself to act would be breached. That is demonstrated by the fact that the Respondent’s case did not attempt to justify the retention of the repayment other than on the highly technical point that was taken. I did challenge his submission on the question of fairness and Mr Mathew QC adopted a robust response by indicating that the court was not dealing in matters of morality and in effect that the Court must adopt a robust approach and that if the Court did not follow that direction, the statutory scheme would be undermined to the extent of driving a coach and horses through it. I do not accept that this is the correct approach. MacNamara does introduce just such an approach when dealing with the actions of its office holders. As Mr Parfitt put it to me in his additional written submissions on this point this arguably does involve the driving of a coach and horse through the legislation, but with the Court tightly and judicially holding the reins. For the insolvent estate to retain a windfall of over £5m at the expense of HMRC and the public purse would in my judgment offend the views of any right-thinking person. If the findings I have made were erroneous, in my judgment the application of the Rule in Ex parte James would have been engaged to do justice between the parties.
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