R Wellcome Trust Ltd v Upper Tribunal (Administrative Appeals Chamber)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ouseley |
| Judgment Date | 10 July 2013 |
| Neutral Citation | [2013] EWHC 2803 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 10 July 2013 |
| Docket Number | CO/2313/2012 |
[2013] EWHC 2803 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice Ouseley
CO/2313/2012
Mr T Gaunt QC (instructed by CMS Cameron McKenna) appeared on behalf of the Claimant
Mr P Rainey QC (instructed by Pemberton Greenish) appeared on behalf of the Defendant
This has been an interesting excursion into the hypothetical world, of valuation of the freeholds of properties to be acquired by tenants or nominee purchases from landlords and in particular the world of the deferment rate. I am grateful to Mr Gaunt and to Mr Rainey for their respective submissions.
The case arises as a challenge to the refusal of permission to appeal by the Upper Tier Lands Chamber from the Leasehold Valuation Tribunal. This is a challenge to which the principles set out in R (on the application of) Cart v Upper Tribunal [2012] 1 AC 663, [2011] UKSC 28 apply. Not merely does it have to be shown that the refusal was arguably erroneous in law with material prospects of success, it also has to be shown that an appeal satisfies the second appeal criteria either that there is an important point of principle or practice in the case or that there is some other compelling reason. The arguments had focused on the first limb of the second appeals test.
At the heart of this case lies the effect of a guideline decision of the Lands Tribunal in Earl Cadogan v Sportelli [2007] 1 Estates Gazette Law Reports 153.
The President of the Lands Tribunal, Mr George Bartlett QC, presided over this hearing which was designed to provide guidance in relation to a number of valuation issues in relation to the acquisition of freeholds by tenants under the Leasehold Reform Housing and Urban Development Act 1993 (as amended). This decision was upheld as a guideline decision in the Court of Appeal [2007] EWCA Civ 104, [2008] 1 WLR 2142.
The Lands Tribunal considered three components of the deferment rate, namely, the risk free rate, the real growth rate and the risk premium. The cases involved four properties in what surveyors call "Prime Central London" (PCL). Between paragraphs 68 to 79 the Tribunal considered those three components, coming to the conclusion that the risk premium should be 4.5, in combination with a risk free rate of 2.25 and a real growth rate of 2 per cent, producing what it described as a generic deferment rate of 4.75 per cent. There is a close relationship between the real growth rate and the risk premium, an increase in the one being counterbalanced by a decrease in the other and vice versa.
Having considered the evidence on a generic basis the Tribunal then turned to consider five specific factors. It introduced its consideration of those factors in paragraph 80. It said:
i. "So far we have concentrated on identifying what we have called a 'generic deferment rate', one that is applicable to long term residential property reversions in general. We must now consider whether such a generic rate needs to be adjusted in any particular case for specific factors. It is to be borne in mind that the valuer's evidence has been directed at establishing the appropriate rate for the particular reversions that fall to be valued in the present appeals and that these are flats and houses in the PCL area."
The Tribunal also said that their later answers on specific factors had been of more general application.
The particular specific factor of relevance here is location, because the issue which underlies this particular challenge is whether the deferment rate for PCL properties is wrong. The Tribunal clearly invited the witnesses to give oral evidence on this point because these topics were not covered in their proofs of evidence. It says in paragraph 86 that the Tribunal invited the witnesses to say whether they thought that the deferment rate would vary according to the location of the property. Differing views were expressed. Three of the financial experts took the view that there would be no such difference. It was specifically said by a Professor Lazear that the differences in growth rates leading to markedly different valuations of property would over time be corrected by a convergence effect. He thought this would apply most clearly within an urban area or region but would apply more generally across regions. Mr Cullam, a valuer, also said that locational considerations did not affect the application of the deferment rate to the appeal properties, which as I have said were all in Prime Central London. He noted that there were regional variations within national figures relating to house price growth. Others took the view that that there could be differences within different locations in London as well as in other parts of the country compared to Central London. There was a general expression of a view that location would make a difference by two other surveyors who were unable to provide any statistical justification. The Tribunal concluded at paragraph 88:
i. "Although we accept the view of the valuers that the deferment rate could require adjustment for location, on the evidence before us we see no justification for making any justification to reflect regional or local considerations either generally or in relation to the particular cases before us. The evidence of a financial expert suggests that no adjustment to the real growth rate is appropriate given the long-term basis of the deferment rate. Locational differences of a local nature are, in the absence of clear evidence suggesting otherwise, to be assumed to be properly reflected in the freehold vacant possession value."
The latter reference to "locational differences" is a difference to far more local differences than are material to this case.
Having reached its view in relation to specific factors, the Lands Tribunal considered the significance of its decision on all topics including the deferment rate, its components and other specific factors, and particularly explained the significance of its decision for the method by which the deferment rate was arrived at. This issue about method, rather than the rate itself, had been a matter of controversy and inconsistency for some time and it appears was the primary reason why guidance was to be given in this case.
In paragraphs 114 to 122 the Tribunal addressed its function in giving guidance. It observed at paragraph 114 that it was the function of the Tribunal as a specialist Tribunal to promote consistent practice in the application of the law in the decisions it made within its particular and specialist jurisdiction. It supported that by citing Court of Appeal decisions supporting precisely such an approach, including the warning that unexplained consistency could amount to an error of law.
At paragraph 117 the Tribunal said that a function of the Tribunal was to make decisions on points of law and what may be called "principles of practice" to which regard should be had by the First-Tier Tribunals and by practitioners dealing with claims in any of the Tribunal's original or appellate jurisdictions. Such principles were not to be confined to valuation methodology but could extend to matters of quantification if the considerations underlying the quantification were of general application. The Tribunal then gave a number of instances where that might arise.
The Tribunal continued at paragraph 120, applying those comments to the deferment rate. It said:
i. "The function of this Tribunal in determining a deferment rate is to be treated as a guideline in other enfranchisement cases is similar to the court's determination of a discount rate for the purpose of reaching the present value of the loss of future earnings in personal injury cases."
It set out the appropriate passage from the relevant House of Lords authority. The same considerations applied in relation to the promotion of predictability in the deferment rate. The Tribunal continued:
i. "It is obviously undesirable and it would be impossible for the sort of financial and valuation evidence that we have heard to be called and considered in every enfranchisement case. It is in our judgment unnecessary that it should be because LVTs and this Tribunal are entitled to rely upon their own expertise guided by this decision. The prospect of varying conclusions on the deferment rate in different cases, reached on evidence that was less comprehensive than that before us, can therefore be avoided by LVTs adopting the practice of following the guidance of this decision unless compelling evidence to the contrary is adduced. This is justified because, as we have explained above, the deferment rate is unlikely to vary according to factors particular to the individual case. Some factors including in particular the prospect of long-term growth will not vary from case to case while other factors such as location and obsolescence will already be reflected in the vacant possession value."
He then referred to hope value.
i. "The case for adopting a single deferment rate (with a standard adjustment for flats) for all reversions in excess of 20 years is thus in our view strong indeed. Indeed we think that statutory prescription could well be appropriate and could usefully give a greater certainty to the market than a decision of the Tribunal setting a guideline is capable of doing.
ii. 122. It is a necessary part of the concept of guideline applicable to future cases that the...
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