R (Edison First Power Ltd) v Central Valuation Officer
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SIMON BROWN,LORD JUSTICE MAY,LORD JUSTICE DYSON |
| Judgment Date | 12 July 2001 |
| Neutral Citation | [2001] EWCA Civ 1096 |
| Docket Number | Case No: C/2000/3678 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 July 2001 |
[2001] EWCA Civ 1096
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ADMINISTRATIVE COURT
AND DIVISIONAL COURT
(MR JUSTICE CARNWATH)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Simon Brown
Lord Justice May and
Lord Justice Dyson
Case No: C/2000/3678
Mr Michael Beloff, QC, Mr Nigel Pleming, QC & Mr Christopher Lewsley (instructed by Jones Day Reavis & Pougue of London EC4N 8NA) for the Appellant
Mr Richard Drabble, QC & Mr Timothy Mould (instructed by The Treasury Solicitor of London SW1) for the Respondent
Mr Robin Dicker, QC (instructed by Freshfields Bruckhaus Deringer of London EC4 1RS) for Powergen UK plc (interested party)
On 19 July 1999 Edison First Power Limited (the appellant) completed the purchase from Powergen UK Plc (Powergen, a person directly affected by these proceedings) of 199 year leases of two electricity power stations and thereupon, as occupiers, became liable to local non-domestic rates for the balance of the rating year 1999/2000 in the sum of about £13.5 million, a liability calculated by reference to the power stations' declared net capacity (DNC). So much is not in dispute.
What is in dispute, by the appellant but not by Powergen, is whether, following the sale, Powergen continued to be liable for central non-domestic rates in a similar sum calculated in essentially the same way. The appellant contends not, on the basis that such liability would offend the fundamental principle against double taxation – adapted in the rating context to the principle against double assessment – and thus constitute an abuse of power by the respondent Secretary of State, the ultimate recipient of both rate payments. The appellant's interest in the matter stems from its liability under the contract for the purchase of these power stations (subject to arbitration proceedings to be heard in late July) to reimburse Powergen in this sum.
Carnwath J held that the liability under the rating scheme for both payments clearly gives rise to double assessment but that this is permitted by the legislation and involves neither irrationality nor a breach of the European Convention on Human Rights. He accordingly dismissed the challenge. The appellant now appeals to this Court by leave of the Judge below.
With that briefest of introductions let me now turn to set out the factual background, the rating background and the present legislative scheme almost entirely as explained in the helpful judgment below.
Factual Background
As stated, this appeal concerns liability for non-domestic rates in respect of two electricity power stations, Fiddler's Ferry in Cheshire and Ferrybridge "C" in Yorkshire. Prior to July 1999 the two power stations were owned and occupied by Powergen, a company created when the Central Electricity Generating Board was privatised in 1990. Its business now includes a wide range of activities, one of which is electricity generation. Its electricity generation and transmission businesses are regulated under the Electricity Act 1989.
Powergen is a designated person for the purposes of central rating. Property occupied by Powergen for the purposes of electricity generation is subject to central non-domestic rating and is included in the central rating list. Central non-domestic rates are demanded by, and payable to, central Government (the Secretary of State for the Environment) for inclusion in the rates pool which is subsequently distributed to local authorities. Up to and including the year 1999/2000, the two power stations were subject to central rating, as part of an assessment as a whole of all the hereditaments in England occupied by Powergen for the purposes of electricity generation. The rates paid by Powergen for the year 1999/2000 were calculated on that basis.
In 1998, Powergen gave an undertaking to the Secretary of State for Trade and Industry, under the Fair Trading Act 1973, to dispose of a proportion of its coal-fired generating capacity by a date to be specified by him. The date specified was 30 th July 1999. In compliance with that undertaking, it offered the two power stations for sale. In April 1999, the appellant entered into an agreement with Powergen to acquire long (199 year) leases of the two power stations and to occupy them for the purposes of the generation of electricity. The purchase was completed on 19 th July 1999. Powergen then ceased to occupy the power stations, and the appellant became the occupier. The appellant is not a designated person. Properties occupied by it are subject to local rating and are included in the local rating list.
Part of the agreement (clause 9) was that, upon completion, an apportionment was to be made of various charges and payments in respect of the power stations, including non-domestic rates payable by Powergen in relation to the power stations for the rating year 1999/2000. About £13.5m was claimed by Powergen, as representing the amount paid by it in relation to the two power stations for the part of the rating year when the appellant was in occupation. The appellant has paid that sum, but is contesting the liability in separate arbitration proceedings under the contract.
Subsequently, local non-domestic rates (of a similar amount) were demanded from the appellant by the local authorities in whose areas the power stations are situated, for the period from the change of occupation in July 1999 to 31 st March 2000. Warrington District Council issued a demand on the 19 th November 1999 in respect of Fiddler's Ferry. Wakefield Metropolitan District Council issued a demand on the 14 th March 2000 in respect of Ferrybridge "C". Payments have been made by the appellant under protest. The local authorities had already paid equivalent sums to Central Government (the Secretary of State) for inclusion in the rates pool.
There has been no amendment to the central rating list to reflect the change of occupation in July 1999. This can only be done with effect from the beginning of the next rate year after a change of occupation, that is, with effect from the 1 st April 2000. The Secretary of State has refused to refund the amount paid in respect of the two power stations under the central list for the period after the change of occupation in July 1999 up to the 31 st March 2000 although he has agreed that he would do so on an ex gratia basis were this Court to hold that to retain it would constitute an abuse of power.
Valuation – background
It is useful to begin by setting the relevant parts of the Local Government Finance Act 1988 in their historical context. The traditional basis for assessment of value for rating purposes was by reference to "net annual value" of a "hypothetical tenancy". In relation to property which was rarely or never let, valuers had to devise methods which would provide them with evidence of the annual letting value.
Two main methods emerged: the contractor's basis and the profits' basis. The contractor's basis is, in short, interest on the cost of construction; the theory is that a prospective tenant would not agree to pay more by way of rent for the hereditament being valued than it would cost him to borrow money (or use his own) to construct similar premises elsewhere. The profits basis assesses the receipts and expenditure involved in carrying on an undertaking in order to arrive at a figure (the "divisible balance") from which the tenant's share is then deducted, leaving a figure which is available to pay rent to a landlord.
Where the undertaking occupied property in several rating areas, a further step involved making an apportionment of the total figure to enable a rateable value to be attributed to each hereditament. The profits basis came to be established as the appropriate basis for assessing canals, railways, docks, water, gas, electricity and similar undertakings. It was eventually held by the House of Lords that it had to be applied as a matter of law to public utility undertakings ( Kingston Union v Metropolitan Water Board [1926] AC 331).
Following the war, most of the public utilities were nationalised. Since they were no longer operated for profit, the profits basis was no longer considered to be the appropriate basis for assessment. Statutory provision was, therefore, made in respect of each industry. So far as the electricity industry was concerned, the bodies set up on nationalisation were not liable to be rated, although they were required to make payments to local authorities in lieu of rates. The structure of the electricity industry was changed by the Electricity Act 1957 (creating the Central Electricity Generating Board, and 12 area boards). At the same time the method of rating the boards was provided for in the Local Government Act 1958, later consolidated into the General Rate Act 1967.
Under the General Rate Act 1967, the measure of liability continued to be the rateable value of the hereditament, derived from its net annual value (s 19(1)). For the assessment of the nationalised industries the statutory formulae were retained. The statutory scheme for the rating of the CEGB and each Area Board (under the General Rate Act 1967, s 34) provided that each Board was to be treated as occupying in each rating area a hereditament having a rateable value calculated in accordance with schedule 7. The rateable value was assessed as the value of the distribution and generating activities of each Board. The schedule specified the "basic electricity rateable value" of all Boards (which was...
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