Ensuring customers are not subject to unnecessary recovery action, additional costs or hardship

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Dear Lichfield District Council,

A council taxpayer who owes more than just the current year's liability runs the risk of incurring additional recovery costs through a further application for a liability order if payments which are intended for the current year's liability are allocated by the council's computer to the previous year's liability. This would most likely happen where a non specific payment is made and the computer software is set to automatically allocate these payments to the oldest year's debt.

Councils computer systems have the necessary flexibility to be set to allow non specific payments to be allocated to the arrears or the current year's liability.

I understand that the majority of billing authorities have their computer software set to ensure that their customers are not subject to unnecessary recovery action, additional costs or hardship, i.e. so non specific payments are allocated to the current year's liability.

How does Lichfield Council have its computer software set to deal with non specific payments. Current or oldest year's liability?

Yours faithfully,

Gwyn Worth

Generic - FOI, Lichfield District Council

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Begley, Nicola, Lichfield District Council

Dear Sir

Further to your request for information under the Freedom of Information Act, non- specific payments are allocated to oldest years liability first.

regards

Nicola Begley (Mrs)
Recovery Manager
Lichfield District Council

T: 01543 308886

Dear Mrs Begley,

Thank you for stating that 'non- specific payments are allocated to oldest years liability first'.

Would you please confirm whether or not any measures are in place to check that allocating an unmatched payment to the oldest debt in these circumstances would have the consequences of putting the current year's liability also in arrears, and if so, in accordance with R. v Miskin Lower Justices [1953] 1 Q.B. 533, whether the payment would be moved in respect of the current year's account to avoid unnecessary recovery action, additional costs etc.?

Yours sincerely,

Gwyn Worth

Begley, Nicola, Lichfield District Council

Good Morning

We have tolerances built into the allocation rules to ensure payments which are within £5 of the current years instalments will be allocated to the current year. No other specific checking is undertaken, except where a payment has been allocated against a enforcement debt but the payment is not from enforcement agents, however, if upon contact a customer confirms the payment was for the current year, we will allocate as directed.

Regards

Nicola Begley (Mrs)
Recovery Manager
Lichfield District Council

T: 01543 308886

Dear Mrs Begley,

Thank you for your explanation. I consider that Lichfield District Council has provided the information I requested, however, the purpose of this exercise was to ascertain whether or not the principles surrounding the appropriation of payments were being adhered to.

If no instruction is given at the time of payment, then the council has a duty to allocate payment to the account which it is most beneficial to the debtor to reduce. That would be the current liability if the consequences of allocating payment to the arrears meant that the customer was subject to unnecessary recovery action, additional costs etc.

I appreciate that having a £5.00 tolerance built into the allocation rules is a step towards achieving the correct allocation of payments. However, with the council being unable to confirm that these measures ensure that unspecified payments are allocated to the account which it is least burdensome for the debtor it is doubtful that the laws surrounding the appropriation of payments are being fully complied with. If it appears I have misunderstood anything by what I have stated I would appreciate if you would correct me.

Yours sincerely,

Gwyn Worth

Begley, Nicola, Lichfield District Council

Good Morning

I would be grateful on what basis you are saying

" then the council has a duty to allocate payment to the account which it is most beneficial to the debtor to reduce",

and what legislation you are referring to in your statement

"the laws surrounding the appropriation of payments"

Regards

Nicola Begley (Mrs)
Recovery Manager
Lichfield District Council

T: 01543 308886

Dear Mrs Begley,

Thank you for you reply.

Re; "The laws surrounding the appropriation of payment."

I refer to the general principles, which take into consideration the relevant case law. For example, the principles of the laws of appropriation relevant to the debtor’s rights are set out in Chitty on Contracts (31st Edition) Volume 1 at Para 21-061 (see below, note R v Miskin Lower Justices):

'21-061
Debtor’s right to appropriate. It is essential that an appropriation by the debtor should take the form of a communication, express or implied, to the creditor of the debtor’s intention to appropriate the payment to a specified debt or debts so that the creditor may know that his rights of appropriation as creditor cannot arise [353]. It is not essential that the debtor should expressly specify at the time of the payment which debt or account he intended the payment to be applied to. His intention may be collected from other circumstances showing that he intended at the time of the payment to appropriate it to a specific debt or account [354]. Thus, where at the date of payment some of his debts are statute barred and others are not, it will be inferred (in the absence of evidence to the contrary) that the debtor appropriated the payment to the debts that were not so barred. [355]

353 Leeson v Leeson [1936] 2 K.B. 156, 161; Stepney Corp v Osofsky [1937] 3 All E.R. 289; Thomas v Ken Thomas Ltd [2006] EWCA Civ 1504, [2007] Bus. LR 429 at [19].

354 Newmarch v Clay (1811) 14 East 239, 244; Shaw v Picton (1825) 4 B. & C. 715; Young v English (1843) 7 Beav. 10; Nash v Hodgson (1855) 6 De G.M. & G. 474; R. v Miskin Lower Justices [1953] 1 Q.B. 533.

355 Nash v Hodgson (1855) 6 De G.M. & G. 474; cf. a balance owing on a current account: Re Footman Bower & Co Ltd [1961] Ch. 443 (and see below, para. 21-067). '

It was held in R v Miskin Lower Justices, that where an amount obviously relates to a specific liability, it would be an unwarranted assumption to allocate the payment elsewhere.

In light of the above, it is considered that if the laws of appropriation were to be complied with, an unmatched payment allocated to the oldest debt (having the consequences of putting the current year's liability also in arrears) would be reallocated to the current year's liability on account of the circumstances implying that this was the debtor's intention (least burdensome for the debtor).

Yours sincerely,

Gwyn Worth

Begley, Nicola, Lichfield District Council

Dear Sir

Legislation directs payments to be allocated to costs first (Regulation 52(4) to SI 1992/613). Case law sets a precedent that if the payment obviously relates to a specific liability it should be allocated as such.

It could be argued that allocating payments to debts subject to recovery would also be of the most benefit to a customer, especially if non-payment would result in enforcement action, bankruptcy, committal proceedings or a charging order. All of which attract considerable costs to be met by the customer over and above that of granting a liability order.

Regards

Nicola Begley (Mrs)
Recovery Manager
Lichfield District Council

T: 01543 308886

Dear Mrs Begley,

Thank you for your reply which I have now had chance to consider.

I do not understand the relevance of Regulation 52(4) of the the Council Tax (Admin and Enforcement) Regs 1992. Regulation 52(4) concerns how a sum paid is treated which is less than the aggregate of the sum outstanding and additional costs/charges incurred in respect of a liability order. This would only be relevant to payments made in respect of the year's account to which the liability order related. No element of a customers payment could be used to discharged the additional costs/charges relating to a previous year's liability if the payment obviously related to the current year's account.

Regarding the second point which argues for allocating payments to debts subject to recovery, this would seem to achieve nothing in the way of benefiting the customer. The net result would mean that rather than having ONE year's liability subject to potential enforcement, bankruptcy, committal proceedings or a charging order, the customer would have TWO year's liability potentially subject to those burdens.

Yours sincerely,

Gwyn Worth

Whatshouldtheyknow left an annotation ()

It is stated in Chitty on Contracts, 18th ed., p. 857, that "it is not essential that there should have been an express declaration by the debtor at the time of the payment, as to the account to which he intended such payment to be applied. His intention may be proved either by his previous or by his subsequent declarations. And even in the absence of any declaration on the subject, it may be collected from other circumstances that the debtor intended, at the time of the payment, to appropriate it to a specific account."

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