Tax Appeal Is Not Property

Tax appeal is not property – a bare right of an appeal is not property that is capable of being assigned.

Tax Appeal Is Not Property

‘Appeal of Tax Assessment’ flows from the case of Re GP Aviation Group International Ltd [2014] 2 All ER 448.

The case involved a misfeasance application by a Liquidator. However, during the proceedings, the respondents submitted an application that the HMRC discovery assessments that resulted in the restoration of GP Aviation Group International Ltd (“the Company”) ought either to be appealed by the Liquidator or that the Liquidator assigned the rights to make such appeals to the respondents.

The Court dismissed the respondents’ application on the basis that it was the right of the Liquidator alone to appeal not being open to him or her to assign the right to appeal.

Judgment – Key Extracts

I have come to the conclusion that a bare right of appeal of the sort I am now considering is not property within the meaning of the IA. I reach that conclusion for the following reasons.

First, the classical definition of a chose in action is that identified by Channel J in Torkington v. Magee [1902] 2 KB 437 at 430 – that it is an expression used to describe “… all personal rights of property which can only be claimed or enforced by action and not by taking physical possession”. A bare right to appeal against what would otherwise be a liability does not satisfy this definition. It is not a right that must be claimed by action. It is a right that is unconditionally conferred on the Company (in this case) by operation of statute. It is not a property right that can only be enforced by action. That is a cause of action and a bare right to appeal does not fall within the scope of that concept either.

Secondly, the authorities maintain a distinction between a chose and the remedies available for its enforcement. As I have said already, the right to a remedy is an incident of the ownership of the chose. The remedy is not something that is capable of being sold or assigned separately from the right to which it relates. It is this point that underlies the reasoning of Ramsey J in Ruttle Plant Limited (ante). It was this point too that underpins the reasoning in ICS v. West Bromwich BS [1998] 1 WLR 896 where the substantive conclusion of the House of Lords was that a claim to rescission could be made only by the owner of the mortgaged property and was not a separately assignable chose in action being simply part of the process of rescission – see 914HY – 915F. A chose in action can be assigned but not a particular remedy by which that chose can be enforced. As Lord Hoffmann put it (speaking for the majority in that case) “… what is assigned is the chose … the existence of a remedy or remedies is an essential condition for the existence of a chose …but that does not mean that the remedies are property in themselves, capable of assignment separately from the chose.” Lord Hoffmann defined a chose as being “… something capable of being turned into money …” and “… the assignee either acquires the right to the money or he does not. If he does, he necessarily acquires whatever remedies are available to recover the money …”. A liability does not satisfy this requirement. If that is so, it is difficult to see how a right vested in the person otherwise liable to appeal can have such status. Aside from that, a right of appeal relating to an estate in which the proposed assignee of the right to appeal has no proprietary interest is not something capable of being turned into money in this sense. It is akin to assigning a remedy without the right in respect of which the remedy exists.

The right of appeal is a right conferred on the Company by statute by reason of it having been assessed to tax. The liability to which the bare right to appeal relates could not on conventional analysis be assigned – see Linden Gardens Trust Limited v. Lenesta Sludge Disposals Limited [1994] 1 AC 85 at 103. What is in issue here is a tax liability. It is difficult to see on what basis it would be treated any differently. Thus the liability to which the right of appeal is appurtenant cannot be assigned. Thus all that could be assigned would be the right to appeal. Such a right is no more capable of assignment than is a remedy independently of the chose to which it relates. Whilst I accept that as a matter of legal theory it may be possible to novate the legal relationship that exists in a manner than enables a liability to be passed from one party to another, that requires the consent of both the obligor and the obligee and it is difficult to see any circumstances in which such a situation could arise where the purpose of the exercise is to enable a right of appeal to be exercised that if exercised successfully will be adverse to the interests of the person to whom the liability is owed. This is all the more the case where the right to appeal is vested in a trustee in bankruptcy or company in liquidation.

Thirdly, this analysis is entirely consistent with the orthodox approach to whether a bankrupt has locus to appeal, as to which see Heath (ante). As I have said already Hoffmann LJ could have but did not approach the issue on the basis that a right to appeal was a property right that vested in the trustee as part of the bankrupt’s estate. Introducing an entirely artificial concept of property for the purpose of concluding that an office holder can assign a right of appeal without being able to assign the liability that goes with it may have all sorts of unintended consequences for the conventional approach in relation to personal orders that it is entirely unnecessary to create.

All this leads me to conclude that a bare right to appeal is not property within the meaning of s.436 of the IA. A right of appeal available to a bankrupt is one that the bankrupt loses locus to bring or maintain once he or she is adjudicated bankrupt because the only assets out of which the underlying liability can be met have vested in the trustee and not because the right is a chose that vests in the trustee. The trustee has a statutory right (but not the obligation) to exercise any right of appeal that the bankrupt might have had as and from the moment at which the bankrupt is made the subject of a bankruptcy order. Similarly a right to appeal available to a company in liquidation can only be exercised by the office holder once appointed because he she or they then become the only agents of the company entitled to do so. Again however that is not the result of the right to appeal being treated as a property interest.