Re Selectmove Ltd - [1995] 2 All ER 531 PDF

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All England Law Reports/1995/Volume 2 /Re Selectmove Ltd - [1995] 2 All ER 531 [1995] 2 All ER 531

Re Selectmove Ltd COURT OF APPEAL, CIVIL DIVISION BALCOMBE, STUART-SMITH AND PETER GIBSON LJJ 7, 21 DECEMBER 1993 Insolvency - Petition - Compulsory winding-up petition by Revenue - Disputed debt - Proposal by taxpayer company to pay tax as it fell due and arrears of tax in instalments - Collector of taxes stating that he would seek approval for the proposal from his superiors and would revert to taxpayer company if it was unacceptable - Whether Revenue's silence constituting acceptance - Whether collector having actual or ostensible authority to enter into agreement - Whether agreement supported by consideration - Whether Revenue estopped from presenting winding-up petition. In July 1991 the taxpayer company owed the Revenue substantial amounts of income tax and national insurance contributions (NIC). On 15 July 1991 at a meeting with the collector of taxes the company's managing director suggested that the company should pay the tax and NIC as they fell due, commencing with the liability for August 1991, and repay the arrears at the rate of £1,000 per month from 1 February 1992. The collector stated that the proposal went further than he would have liked and that he would have to seek the approval of his superiors and would revert to the company if it was unacceptable. The company heard nothing further until 9 October 1991 (by which date it had paid only one month's tax and NIC as they had fallen due) when the Revenue demanded payment of the arrears in full. Thereafter such payments as were made by the company pursuant to the alleged agreement were paid late. Subsequently the Revenue served a statutory demand and on 7 September 1992 they presented a winding-up petition. The company relied on the Revenue's acceptance of the proposal of 15 July 1991 to support its contention that the petition should be dismissed on the ground that the debt was disputed by the company in good faith and on substantial grounds. The judge, however, compulsorily wound up the company, upholding the Revenue's submissions (i) that no agreement had been concluded by the Revenue's silence in response to the proposal and (ii) that even if there had been an agreement there had been no consideration therefor. The company's alternative argument that, by reason of its agreement with the Revenue, the latter were estopped from enforcing the debt was also rejected by the judge on the ground that there had been no agreement or promise by the Revenue which could give rise to an estoppel. The company appealed, contending that the collector had ostensible authority to accept the proposal and had conveyed the Revenue's acceptance by his subsequent silence. It further contended that its promise to pay an existing liability had amounted to good consideration on the ground that the Revenue would derive practical benefits from the agreement. Held - (1) Having regard to the fact that the collector had no actual authority (as he had made clear) to agree the company's proposal and no ostensible authority to agree it, the Revenue having made no representation to the company that he had such authority, no acceptance of the proposal had been conveyed by his silence (see p 536 g h and p 539 f g, post). [1995] 2 All ER 531 at 532 (2) It was settled law that a promise to pay a sum which a debtor was already bound by law to pay was not good consideration. The principle that a promise to perform an existing obligation could amount to good consideration provided that there were practical benefits to the promisee was confined to cases where the obligation involved was a supply of goods or services. It would be impossible, consistently with the doctrine

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of precedent, for that principle to be extended to an obligation to make a payment. Accordingly, even if there had been an agreement between the company and the Revenue, it was unenforceable for want of consideration (see p 538 g to j and p 539 f g, post); Foakes v Beer [1881-5] All ER Rep 106 followed; Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512 distinguished. (3) The doctrine of promissory estoppel did not arise in the instant case. As the collector had no actual or ostensible authority to make the agreement claimed by the company, he had no authority to make the promise said to found the estoppel against the Revenue. In addition, as the company had failed to honour its promise to pay tax as it fell due, it was not inequitable or unfair for the Revenue to have demanded payment of all the arrears, nor, in the light of the further late payments, was it unfair or inequitable to serve a statutory demand and present a winding-up petition to enforce the debt. It followed that the company's appeal would be dismissed accordingly (see p 539 d to g, post). Notes For recovery of tax by the Crown, see 23 Halsbury's Laws (4th edn reissue) paras 1723-1732. For acceptance of an offer by silence, see 9 Halsbury's Laws (4th edn) paras 250-251. For compliance with legal obligations imposed by contract with promisor, see ibid para 328. For the doctrine of promissory estoppel, see ibid paras 575-579. Cases referred to in judgments Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA, The Leonidas D [1985] 2 All ER 796, [1985] 1 WLR 925, CA. Armagas Ltd v Mundogas SA, The Ocean Frost [1986] 2 All ER 385, [1986] AC 717, [1986] 2 WLR 1063, HL; affg [1985] 3 All ER 795, [1986] AC 717, [1985] 3 WLR 640, CA. D & C Builders Ltd v Rees [1965] 3 All ER 837, [1966] 2 QB 617, [1966] 2 WLR 288, CA. Foakes v Beer (1884) 9 App Cas 605, [1881-5] All ER Rep 106, HL. Gebr Van Weelde Scheepvaartkantor BV v Cia Naviera Sea Orient SA, The Agrabele [1985] 2 Lloyd's Rep 496; rvsd [1987] 2 Lloyd's Rep 223, CA. Pinnel's Case (1602) 5 Co Rep 117a, [1558-1774] All ER Rep 612, 77 ER 237. Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168, NP. Stonegate Securities Ltd v Gregory [1980] 1 All ER 241, [1980] Ch 576, [1980] 3 WLR 168, CA. Vanbergen v St Edmunds Properties Ltd [1933] 2 KB 223, [1933] All ER Rep 488, CA.

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Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 1 All ER 512, [1991] 1 QB 1, [1990] 2 WLR 1153, CA. [1995] 2 All ER 531 at 533 Cases also cited or referred to in skeleton arguments Central London Property Trust Ltd v High Trees House Ltd (1946) [1956] 1 All ER 256, [1947] KB 130. Company, Re a (No 001946 of 1991), ex p Fin Soft Holding SA [1991] BCLC 737. Fairline Shipping Corp v Adamson [1974] 2 All ER 967, [1975] QB 180. Felthouse v Bindley (1863) 1 New Rep 401, Ex Ch; affg (1862) 11 CBNS 869, 142 ER 1037. Mann v Goldstein [1968] 2 All ER 769, [1968] 1 WLR 1091. Preston v IRC [1985] 2 All ER 327, [1985] AC 835, HL. R v Board of Inland Revenue, ex p MFK Underwriting Agencies Ltd [1990] 1 All ER 91, [1990] 1 WLR 1545, DC. Taylors Industrial Flooring Ltd v M & H Plant Hire (Manchester) Ltd [1990] BCLC 216, CA. Welsh Brick Industries Ltd, Re [1946] 2 All ER 197, CA. Appeal By a notice of appeal dated 25 January 1993 Selectmove Ltd (the company) appealed from the order of Judge Moseley QC, sitting as a judge of the Companies Court, made on 19 January 1993, whereby on the petition of the Commissioners of Inland Revenue as creditors he compulsorily wound up the company on the grounds that the judge had erred in concluding that there was not a bona fide dispute as to the debt on which the petition to wind up the company was founded. The facts are set out in the judgment of Peter Gibson LJ. Christopher Nugee (instructed by Stockler Charity) for the company. A W H Charles (instructed by the Solicitor of Inland Revenue) for the Crown. Cur adv vult 21 December 1993. The following judgments were delivered.

PETER GIBSON LJ (delivering the first judgment at the invitation of Balcombe LJ). This is an appeal by Selectmove Ltd (the

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company) from the order made on 19 January 1993 by Judge Moseley QC, sitting as a judge of the Companies Court, whereby on the petition of the Commissioners of Inland Revenue (the Crown) as creditors he compulsorily wound up the company. The issue before us, as it was before the judge, is whether the debt of the company to the Crown is disputed in good faith on substantial grounds. There is no doubt as to the correct approach to that issue. The jurisdiction of the Companies Court to wind up companies is not for the purpose of deciding a factual dispute concerning a debt which is sought to be relied on to found a petition. Until the petitioner can establish that he is a creditor, he is not entitled to present a petition based on a claimed debt. Accordingly, the practice of the Companies Court is to dismiss a creditor's petition based on a debt which is disputed by the company in good faith and on substantial grounds (see eg Stonegate Securities Ltd v Gregory [1980] 1 All ER 241 at 243, [1980] Ch 576 at 580 per Buckley LJ). In July 1991 the company owed the Crown substantial amounts of tax (PAYE) which it had deducted from the emoluments of its employees under the PAYE system and national insurance contributions (NIC), the arrears [1995] 2 All ER 531 at 534 going back to the previous fiscal year. On 15 July 1991 Mr ffooks, the managing director of the company, met Mr Polland, a collector of taxes, at the latter's office. Mr ffooks' account of what occurred is contained in a letter dated 11 October 1991 from him to the Crown and is verified by his affidavit of 27 November 1992. In that letter he said that he explained to Mr Polland that the company was having cash flow problems, but that the company's bank was being supportive. He said that he suggested to Mr Polland that it could not be in anyone's interest for the company to be put into compulsory liquidation when the typesetting market in which the company was engaged usually picked up after the summer, and that the company had been trading 'marginally profitably' since the start of the financial year. Mr Polland, he said, asked him if he was in a position to put forward a proposal to pay back the arrears of PAYE and NIC and told him that any proposal should include the prompt payment of any future PAYE and NIC as they fell due. He further said that he told Mr Polland that because of the lengthy credit terms usual in the publishing industry, even if the company continued to trade at a profit, this would not be reflected in cash coming in to the company for four or five months. He continued:

'I therefore proposed that the company would pay any future PAYE and NIC liability as it fell due commencing with the liability for August (due September) and this has been done. I further proposed that the arrears of PAYE and NIC would be paid at a rate of £1,000 per month from the 1st February 1992. Mr. Polland said that such a proposal went further than he would have liked and that he would have to seek approval from his superiors to whom he would recommend it considering the support that both I and our bankers were giving the company. He said he would revert to me if it was unacceptable. To date I have not heard from him and as I have made the two payments which were due under the agreement it is clear that this agreement has come into existence.'

The Crown disputes that Mr Polland made any agreement with Mr ffooks. However, it was accepted that for the purpose of the hearing before the judge the company's version of the facts of what occurred should be taken as correct, and the same assumption has been common ground on this appeal. The company did not hear further from the Crown until 9 October 1991. By then, on 19 August 1991, it had duly paid PAYE and NIC for August 1991 amounting to £2,309, but it had not paid PAYE and NIC for September 1991 although that had become due on 19 September 1991. On 9 October 1991 the Crown wrote to the company, demanding payment of PAYE and NIC arrears totalling £24,650 and threatened a winding-up petition if payment was not made. It was to that letter that Mr ffooks was responding by his letter dated 11 October 1991 in which the agreement between Mr ffooks and Mr Polland was alleged. On 11 October 1991 the company paid the September PAYE and NIC in the sum of £1,821. On 22 November 1991

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a further payment of PAYE and NIC for October and November in the sum of £2,699 was made, again late. In 1992 seven cheques of £1,000 each were paid to the Crown, the first two on 3 March 1992. Again there were failures by the company to honour what Mr ffooks said was agreed with Mr Polland, viz the payment of £1,000 per month from 1 February 1992. On 18 October 1991 the employees of the company were given notice of dismissal and on 24 October 1991 the company sold all its work-in-progress to another company, the intention of the sale agreement [1995] 2 All ER 531 at 535 being, according to the company's solicitor, Mr Stockler, to provide £1,000 per month to settle the Crown's claim. However, the Crown continued to press for payment and served a statutory demand for payment of £19,650·4315. On 7 September 1992 the Crown presented its winding-up petition based on a claimed debt of £17,466·4360. On behalf of the company it was contended before the judge that it had an arguable case that the Crown had accepted the proposal put by Mr ffooks to Mr Polland on 15 July 1991. The Crown took two points on this contention, each of which was accepted by the judge. The first was that no agreement was concluded by the silence of the Crown in response to Mr ffooks' proposal. The second was that if there was an agreement there was no consideration therefor. The company also argued in the alternative that by reason of the agreement between Mr ffooks and Mr Polland the Crown is estopped from relying on the debt as due. That argument too was rejected by the judge on the ground that there was no agreement or promise by the Crown to give rise to any estoppel. Similar contentions were advanced by Mr Nugee for the company before us, and I shall consider in turn the following issues. (1) Was there an acceptance by the Crown of Mr ffooks' proposal? (2) If there was an agreement, was it supported by consideration moving to the Crown? (3) If there was no agreement, is the Crown estopped from asserting that its debt is due? (1) Acceptance The judge referred to the affidavit evidence of Mr ffooks in which he had stated what had occurred at the meeting with Mr Polland on 15 July 1991 and the absence of any communication from the Crown at any time before 9 October and had asserted that the offer had been accepted. The judge said: 'It is not asserted ... that Mr Polland said anything to the effect, "if you do not hear from me, take it that there is an agreement between us".' But that seems to me to be what necessarily is the effect of Mr ffooks' assertion of the acceptance of the offer. The question is whether an agent who makes clear to an offeror that he lacks the principal's authority to accept the offer can, by indicating that he would refer the offer to his principal and that he would come back to the offeror only if the offer was not acceptable, bind the principal to accept the offer by the agent's subsequent silence. Mr Charles, for the Crown, drew our attention to the general rule that silence will not normally amount to acceptance of an offer since acceptance cannot be inferred from silence alone 'save in the most exceptional circumstances' (see Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA, The Leonidas D [1985] 2 All ER 796 at 805, [1985] 1 WLR 925 at 937 per Robert Goff LJ). But the authorities that support the general rule are cases where an offeror sought to impose on the offeree a term as to acceptance by silence. For my part, as at present advised, I would accept the observation of Evans J in Gebr Van Weelde Scheepvaartkantor BV v Cia Naviera Sea Orient SA, The Agrabele [1985] 2 Lloyd's Rep 496 at 509: 'The significance of silence, as a matter of law, may also be different when there is an express undertaking or an implied obligation to speak, in the special circumstances of the particular case.'

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Where the offeree himself indicates that an offer is to be taken as accepted if he does not indicate to the contrary by an ascertainable time, he is undertaking [1995] 2 All ER 531 at 536 to speak if he does not want an agreement to be concluded. I see no reason in principle why that should not be an exceptional circumstance such that the offer can be accepted by silence. But it is unnecessary to express a concluded view on this point. The more substantial objection taken by Mr Charles is as to the want of authority of Mr Polland. That he had no authority to agree to the proposal Mr Polland had made clear to Mr ffooks. It is not suggested by Mr Nugee that Mr Polland had actual authority to conclude the agreement or otherwise to bind the Crown by his silence. He has to assert that Mr Polland had ostensible authority and he submits that such authority extended to conveying his principal's acceptance by his subsequent silence. The difficulty that I have with this submission stems from the fact that it is trite law that ostensible authority involves a representation by the principal as to the extent of the agent's authority and no representation by the agent as to the extent of his authority can amount to a holding out by his principal (see eg Bowstead on Agency (15th edn, 1985) p 286). In Armagas Ltd v Mundogas SA, The Ocean Frost [1986] 2 All ER 385 at 391, [1986] AC 717 at 779 the House of Lords expressly approved the following remarks by Robert Goff LJ: '... the effect of the judge's conclusion was that although Magelssen [the defendants' chartering manager and vice-president] did not have ostensible authority to enter into the contract he did have ostensible authority to tell Jensen and Dannesboe [two shipowners who controlled the plaintiffs] that he had obtained actual authority to do so. This is, on its face, a most surprising conclusion. It results in an extraordinary distinction between (1) a case where an agent, having no ostensible authority to enter into the relevant contract, wrongly asserts that he is invested with actual authority to do so, in which event the principal is not bound, and (2) a case where an agent, having no ostensible authority, wrongly asserts after negotiations that he has gone back to his principal and obtained actual authority, in which event the principal is bound. As a matter of common sense, this is most unlikely to be the law.' (See [1985] 3 All ER 795 at 803, [1986] AC 717 at 730-731.)

In the present case I am not aware of any fact which would enable Mr ffooks reasonably to believe that the superiors to whom Mr Polland referred were themselves making a representation that Mr Polland had their authority to accept the offer or to convey their acceptance by his silence. Accordingly, I would hold that the judge was right to conclude that there was no acceptance, though my reasons differ from those of the judge. (2) Consideration There are two elements to the consideration which the company claims was provided by it to the Crown. One is the promise to pay off its existing liability by instalments from 1 February 1992. The other is the promise to pay future PAYE and NIC as they fell due. Mr Nugee suggested that implicit in the latter was the promise to continue trading. But that cannot be spelt out of Mr ffooks' evidence as to what he agreed with Mr Polland. Accordingly, the second element is no more than a promise to pay that which it was bound to pay under the fiscal legislation at the date at which it was bound to make such [1995] 2 All ER 531 at 537 payment. If the first element is not good consideration, I do not see why the second element should be either. The judge held that the case fell within the principle of Foakes v Beer (1884) 9 App Cas 605, [1881-5] All ER Rep 106. In that case a judgment debtor and creditor agreed that in consideration of the debtor paying part of the judgment debt and costs immediately and the remainder by instalments the creditor would not take any proceedings on the judgment. The House of Lords held that the agreement was nudum pactum, being without consideration, and did not prevent the creditor, after payment of t...