Hurstwood Properties (A) Ltd and Others v Rossendale Borough Council and another

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Briggs,Lord Leggatt,Lord Reed,Lord Hodge,Lord Kitchin
Judgment Date14 May 2021
Neutral Citation[2021] UKSC 16

[2021] UKSC 16

Supreme Court

Hilary Term

On appeal from: [2019] EWCA Civ 364

before

Lord Reed, President

Lord Hodge, Deputy President

Lord Briggs

Lord Kitchin

Lord Leggatt

Hurstwood Properties (A) Ltd and others
(Respondents)
and
Rossendale Borough Council and another
(Appellants)

Appellants

Robin Mathew QC

James Couser

Stephen Ryan

(Instructed by ASW Solicitors (Liverpool))

Respondents

Kevin Prosser QC

Nicholas Trompeter

(Instructed by Addleshaw Goddard LLP (Manchester))

Appellants:-

(1) Rossendale Borough Council

(2) Wigan Council

Respondents:-

(1) Hurstwood Properties (A) Ltd

(2) Hurstwood Properties (C) Ltd

(3) Hurstwood Properties (I) Ltd

(4) Hurstwood Properties (R) Ltd

(5) Hurstwood Properties (Y) Ltd

(6) Hurstwood Group 1 Ltd

(7) Property Alliance Group Ltd

Heard on 26 October 2020

Lord Leggatt

Lord Briggs AND( with whom Lord Reed, Lord Hodge and Lord Kitchin agree)

Introduction
1

The question on these appeals is whether the appellant local authorities have reasonable grounds for claiming non-domestic rates on certain empty properties from the respondent companies. In bare outline, non-domestic rates (or business rates) are charged on the occupier of a property which is not a domestic property or, if the property is unoccupied, on the owner of the property, subject to certain exceptions. The owner is defined as the person entitled to possession of the property. One of the exceptions is where the owner (as defined) is a company in liquidation, including voluntary liquidation. The respondents are the registered owners of various unoccupied commercial properties who have sought to avoid liability for business rates by means of one or other of two closely related schemes.

2

Both schemes involve setting up a special purpose vehicle (“SPV”) in the form of a company without any assets or business. The registered owner grants a short lease of the unoccupied property to the SPV. The premise of the schemes is that the SPV thereupon becomes the “owner” of the property for the purpose of the liability for business rates. The SPV is immediately put into members' voluntary liquidation or, alternatively, is dissolved. In the liquidation version of the scheme, reliance is then placed for as long as possible on the exemption which applies where the owner of the property is being wound up. The dissolution version of the scheme relies on the fact that, upon dissolution, the lease and associated liability for rates is automatically transferred by law as bona vacantia to the Crown (or, as appropriate, to the Duchy of Lancaster or Cornwall). Meanwhile the registered owner is relieved from paying business rates, either until it terminates the lease because it has a tenant or other use for the property or until the lease is disclaimed by the liquidator or by the Crown.

3

On the assumption that the schemes work at all, both versions rely for their effectiveness over time upon administrative inertia. In the liquidation version of the scheme, the period until the necessarily onerous leases are disclaimed by the liquidator is deliberately prolonged. In the dissolution version, there may be delay before the SPV is dissolved; thereafter the scheme relies upon the unlikelihood that the local authority will find out about the dissolution for a considerable time, and then prompt the unsuspecting Crown to disclaim the lease. In either version of the scheme, if and when the relevant lease is disclaimed so that the registered owner regains its entitlement to possession, the scheme can simply be repeated using a fresh SPV.

4

The liquidation version of the scheme (in the form described in this judgment) has already been judicially branded an abuse of the insolvency legislation in proceedings for the winding up in the public interest of a company which promoted and managed such a scheme: see In re PAG Management Services Ltd [2015] EWHC 2404 (Ch); [2015] BCC 720. As will appear, the dissolution version of the scheme is no less an abuse of legal process and may in certain circumstances involve the commission of a criminal offence.

5

It is common ground that the schemes have no business or other “real world” purpose and that their sole purpose is to avoid liability to pay business rates. But, subject to one new point, dealt with below, it is also now common ground that the leases granted to the SPVs were not shams so that, as a matter of the law of real property, they conferred an entitlement to possession upon the SPVs. An argument that the leases were shams was rejected at first instance and has not been resurrected on appeal.

The claims
6

The two present claims, brought by Rossendale Borough Council and Wigan Council against, respectively, companies in the Hurstwood Group and Property Alliance Group Ltd, have been selected as test cases representative of 55 similar cases where one of the schemes outlined above or a materially similar scheme has been employed. The values of the claims for unpaid rates made in these cases vary from a few thousand pounds to millions of pounds.

7

In their particulars of claim in these proceedings the local authorities have alleged, in relation to each property in respect of which they are claiming unpaid rates: (i) that the lease to the SPV, if not a sham, was ineffective to make the SPV the “owner” of the unoccupied property within the meaning of the applicable legislation; alternatively, (ii) that the separate legal personality of the SPV should itself be ignored for this purpose. By either technique they seek to identify the defendant as the entity liable for the unpaid business rates.

8

On the defendants' application to have the particulars of claim struck out on the basis that they disclose no reasonable grounds for bringing the claims, the judge (Judge Hodge QC) ruled in the defendants' favour on the first point but not in relation to the alternative case based on “piercing the corporate veil”: [2017] EWHC 3461 (Ch). The Court of Appeal (David Richards, Henderson and Baker LJJ) decided both issues in the defendants' favour and struck out all the claims: [2019] EWCA Civ 364; [2019] 1 WLR 4567. The local authorities appeal to this court on both points.

The Ramsay principle
9

The first way in which the local authorities advance their claim that the defendants are liable for the unpaid rates relies on the approach to statutory interpretation associated in the field of tax legislation with the case of WT Ramsay Ltd v Inland Revenue Comrs [1982] AC 300. What has often been referred to as the Ramsay principle or doctrine may be said now to have reached a state of well-settled maturity, not least because of its restatement at the highest level in two 21st century authorities: Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51; [2005] 1 AC 684 and UBS AG v Revenue and Customs Comrs [2016] UKSC 13; [2016] 1 WLR 1005. Although usually deployed in relation to tax avoidance schemes, it is not in its essentials particular to tax, being based upon the modern purposive approach to the interpretation of all legislation, one which penetrated the field of tax legislation only at a relatively late stage: see Barclays Mercantile at paras 28–29; and UBS at paras 61–63.

10

There are numerous authoritative statements in modern case law which emphasise the central importance in interpreting any legislation of identifying its purpose. Two examples will suffice. In R (Quintavalle) v Secretary of State for Health [2003] UKHL 13; [2003] 2 AC 687, para 8, Lord Bingham of Cornhill said:

“Every statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life. The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.”

In Bloomsbury International Ltd v Department for the Environment, Food and Rural Affairs (Sea Fish Industry Authority intervening) [2011] UKSC 25; [2011] 1 WLR 1546, para 10, Lord Mance stated:

“In matters of statutory construction, the statutory purpose and the general scheme by which it is to be put into effect are of central importance … In this area, as in the area of contractual construction, ‘the notion of words having a natural meaning’ is not always very helpful ( Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 391C, per Lord Hoffmann), and certainly not as a starting point, before identifying the legislative purpose and scheme.”

See further Lowe and Potter, Understanding Legislation (2018), paras 3.45 – 3.48 (and cases there cited).

11

The result of applying the purposive approach to fiscal legislation has often been to disregard transactions or elements of transactions which have no business purpose and have as their sole aim the avoidance of tax. This is not because of any principle that a transaction otherwise effective to achieve a tax advantage should be treated as ineffective to do so if it is undertaken for the purpose of tax avoidance. It is because it is not generally to be expected that Parliament intends to exempt from tax a transaction which has no purpose other than tax avoidance. As Judge Learned Hand said in Gilbert v Commissioner of Internal Revenue (1957) 248 F 2d 399, 411, in a celebrated passage cited (in part) by Lord Wilberforce in Ramsay [1982] AC 300, 326:

“If … the taxpayer enters into a transaction that does not appreciably affect his beneficial interest except to reduce his tax, the law will disregard it; for we cannot suppose that it was part of the purpose of the Act to provide an escape from the liabilities that it sought to impose.”

See also Collector of Stamp...

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