Mid-Northamptonshire Water Board v Lee (Valuation Officer)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DENNING,LORD JUSTICE PARKER |
| Judgment Date | 27 March 1956 |
| Judgment citation (vLex) | [1956] EWCA Civ J0327-5 |
| Court | Court of Appeal |
| Date | 27 March 1956 |
[1956] EWCA Civ J0327-5
In The Supreme Court of Judicature
Court of Appeal
Lord Justice Denning
Lord Justice Morris and
Lord Justice Parker
re Local Government Act, 1948.
re Lands Tribunal Act, 1949, Section 3(4)
Mr. C.P. HARVEY. Q.C. and Mr. PATRICK BROWNE (instructed by Solicitor of Inland Revenue) appeared an behalf of the Appellant.
Mr. HAROLD WILLIAMS Q.C. and Mr. L. ROOTS (instructed by Messrs Sherwood & Co., Agents for Mr. Vivian Rowe, Northampton) appeared on behalf of the Respondents.
The Judgment which I Will read is the Judgment of the Court.
This case raises a question about the rating of the Mid-Northamptonshire Water Board. The Board is constitutes by the Mid-Northampton water Board confirmation (Special Procedure) Act, 1949. In 1949 it took over the undertakings of several other previous water concerns. It serves the districts of sixteen local authorities who nominate the members of the Board. During the first five years of its existence, namely from 1949 to 1954, the Board obtained its revenue partly from rates levied on consumers and partly by issuing precepts to the local councils. After 1954 the Board will obtain all its revenue, or nearly all of it, by means of precepts to local councils. Each council will add the amount of the precept to the general rate and collect it from the general ratepayers as part of the general rate. The consumers will therefore not pay their water rates separately from the general rate, but will pay the whole of their rates direct to the local council, who will then pay to the Water Board the amount of the precept.
This case arises out of a project for a new reservoir and other works. In the beginning of 1951 the Board anticipated that they would spend £328,550 on new works in the year ending 31st March, 1952, and would have to borrow capital money for the purpose. They estimated that they would have to pay £9,615 interest on this money and budgeted in their accounts accordingly. They prepared precepts so as to enable them to meet all their anticipated current expenditure, including this £9,615. It turns out that they did not spend £328,550 or anything like it on the new works, but only £112,167. The amount in fast required for loan charges was therefore not £9,615, but only £3,365.
The question is how this £9,615 is to be treated in the accounts for rating purposes. The Water Board is rated on the "profits basis", which was explained by Lord Cave in the Kingston Union case, 1926 Appeal Cases at pages 338-9, and I will read two sentences from his Judgment: "In these circumstances it was desirable, in order that a fair assessment might be arrived at, to devise some formula which, while allowing a fall value to the hereditaments in each parish, would not compel she undertakers to pay rates on an aggregate sum exceeding the: whole yearly value of their undertaking; and accordingly rating surveyors, soon after the passing of the Act of 1836, began to assess waterworks and other like concerns, such as railways, canals, gasworks, etc., upon the basis of the profits earned by the whole undertaking. From the gross receipts of the undertaker for the preceding year they deducted working expenses, an allowance for tenant's profit, and the cost of repairs and other statutable deductions, and treated the balance remaining (which would presumably represent the rent which a tenant would be willing to pay for the undertaking) as the, rateable value of the entire concern."
Applying this basis, the figures found by the Tribunal are as follows:
For the Rate period ending 30th September, 1952.
| gross Receipts | £ |
| Revenue from Water Charges, etc. | 195,148 |
| Revenue from Precepts | 56,555 |
| 251,703 | |
| Working Expenses, including repairs and renewals | 187,521 |
| 64,182 | |
| Tenant's share | 18,292 |
| N.A.V. plus Rates | 45,890 |
| Deduct Rates at 20/5d. in the £. | 23,182 |
| Cembalo Net Annual value | £22,708 |
The figure that is questioned is the "Revenue from Precepts, £56,555". The true revenue from precepts as shown in the accounts was £66,170, but the Tribunal thought that in arriving at the figure of revenue for the "profits basis" they ought to exclude the £9,615 (which was estimated for loan charges). They deducted it, therefore, from the £66,170 and arrived at the sum of £56,555. The Tribunal came to that decision because they thought they were bound so to do by reason of the Manchester case, 144 Law Times, 570.
It was shown to us that the current revenue of the Board in 1952 was not enough to meet the current expenditure. They started off on 1st April, 1951, with a credit balance of year. They finished up on 31st March, 1952, with a credit balance only of £13,650. 16. 5. They described this as the "excess of precept income": but they had had to draw on the last year's balance to get any excess.
It seems to us to be quite wrong to bring into the "profits basis" any of the estimates which are prepared for the purpose of calculating the amount of the precepts. The estimates are not binding on the Board. Once they issue the precepts and get the money, they can use it as they like, provided of course that they use it for the Board's purposes. No part of it is earmarked for any particular purpose. The £9,615 may not have gone to pay any interest charges at all. It may have been used up in paying salaries or wages: or it may not have been used at all. It may all have gone into the balance carried forward of £13,650. 16. 5.
Even if the £9,615 could be earmarked for interest charges, we do not think it ought to be deducted. The revenue from precepts was £66,170. That was the revenue of the Board of which they had the right to dispose as they wished. It ought to be taken without any deduction for interest charges. That is, we think, the result of the cases which we now proceed to consider.
In the past, the revenue of the Water Boards has often been derived in part from water rents levied on the consumers for water supplied; and in part from a "public water rate" levied on householders in order to aid the receipts of the Board and ensure that it suffers no loss. In such cases it has been decided for over 70 years that, in applying the "profits basis", the revenue is to be taken as the total revenue from water rent and water rates without any deduction for interest charges on borrowed money: see the Dewsbury case, 16 Queen's Bench Division, 55, 17 Queen's Bench Division, 384, and the Merthyr Tydfil case, 1891 1 Queen's Bench, 186.
In the St. Marylebone case, in 1923 1 King's Bench, 86, where we will simplify the facts, the Metropolitan Water Board received in one year £3 million from the consumers of water. The Board spent £2½ million on working expenses. They also had to pay £1½ million for interest charges on capital sums they had borrowed. They would therefore be £1 million down on the year. In order to meet the £1 million deficiency, they issued precepts oil local authorities who added the amount on to the general rate, collected it from the general body of the ratepayers and handed it over to the Water Board, The question was whether the sum received by means of precepts was to be included as part of the revenue of the hypothetical tenant. The Divisional Court held the sums received from precepts were not to be included because the interest charges were payments of a kind which would fall upon a landlord and not on a tenant.The Divisional Court distinguished the Dewsbury case on grounds that are not apparent to us. The only difference that we can see is that the revenue in the St. Marylebone case was derived, not from water rents or from water" rates levied on householders, but from precepts directed to the local authorities - which seems to us only a difference in the mode of collecting the revenue - not in the nature of it.
Three years later, Lord Blanesburg pointed out the remarkable consequences of the St. Marylebone decision and hinted that it was not correct: see the Kingston Union case, 1926 Appeal Cases at pages 353-4- We think it plaint hat it cannot stand with the reasoning of the House of Lords in the St. James's case, 1934 Appeal Cases, 33. The hypothetical landlord who builds a waterworks would reasonably expect to receive enough rent to enable him to pay interest on the money he has borrowed and also to put something aside for a sinking fund. It is true that the question is what the hypothetical tenant...
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...on the passage in the Judgment of the Court given by Lord Justice Denning in ( Lee v. Mid-Northamptonshire Water Board 1956, volume 2Queen's Bench Division, at page 68): "The hypothetical landlord who builds a waterworks would reasonably expect to receive enough rent to enable him to pay in......