Rossendale Borough Council v Hurstwood Properties (A) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice David Richards,Lord Justice Henderson,Lord Justice Baker |
| Judgment Date | 07 March 2019 |
| Neutral Citation | [2019] EWCA Civ 364 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2017/3463 & 3464 and A3/2017/3506 & 3507 |
| Date | 07 March 2019 |
[2019] EWCA Civ 364
Lord Justice David Richards
Lord Justice Henderson
and
Lord Justice Baker
Case No: A3/2017/3463 & 3464 and A3/2017/3506 & 3507
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LIVERPOOL DISTRICT REGISTRY
HHJ HODGE QC (sitting as a Judge of the High Court)
[2017] EWHC 3461 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Robin Mathew QC, Mr James Couser and Mr Stephen Ryan (instructed by AW Law Limited T/A Alexander Whyatt Solicitors) for the Claimants
Mr Nicholas Trompeter (instructed by Addleshaw Goddard LLP) for the Defendants
Hearing dates: 7 and 8 November 2018
Approved Judgment
Introduction
These appeals concern two schemes designed to avoid the payment of National Non-Domestic Rates (NDR) on properties which in most instances were unoccupied. Both schemes involved the grant of leases of the properties to special purpose vehicle companies (SPVs) without assets or liabilities which, as part of the scheme in question, were then placed in voluntary liquidation or were allowed to be struck off the register of companies as dormant companies and thus dissolved.
The appeals arise in two cases brought by local authorities for the recovery of NDR from the defendants in respect of the properties of which they, as the freehold or leasehold proprietors, had granted leases to SPVs. The defendants maintain that, by virtue of the leases, the SPVs were the “owners” of the properties for the purposes of liability to pay NDR during the currency of the leases. The local authorities accept that this is the case unless the leases or the SPVs can as a matter of law be disregarded.
The appeals raise two issues. First, is it arguable that the doctrine of piercing the corporate veil is applicable to the SPVs? Second, is it arguable that the leases fall to be disregarded by the application of the principles established by the decisions in W.T.Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300 ( Ramsay) and later cases?
On applications by the defendants to strike out the claims in the present cases, HH Judge Hodge QC answered the first question “yes” and the second question “no”. Accordingly, he dismissed the applications as they related to the claims based on piercing the corporate veil, but he allowed the applications, and struck out the relevant parts of the particulars of claim, as they related to the Ramsay principles. The defendants appeal on the first issue, with the permission of the Judge, and the claimants appeal on the second issue, with permission granted by Patten LJ. The Judge also struck out those parts of the claims that alleged that the leases were shams. On that issue, both the Judge and Patten LJ refused the claimants' applications for permission to appeal. In this judgment, I refer to the parties as the “claimants” or “local authorities” and as the “defendants”.
The Judge records that these proceedings are but two of some 55 similar proceedings pending in the Liverpool District Registry of the Chancery Division. The two present cases have in effect been chosen as test cases. The total amount of NDR claimed in all these cases is some £10 million but it may well be that the amount of NDR not paid as a result of schemes such as these is greater.
Statutory provisions for NDR
NDR accrue on a day by day basis. In the case of occupied premises, NDR are payable by the person in occupation of the relevant property on the day in question. This is the effect of section 43 of the Local Government Finance Act 1988 which provides in subsections (1) to (3):
“(1) A person (the ratepayer) shall as regards a hereditament be subject to a non-domestic rate in respect of a chargeable financial year if the following conditions are fulfilled in respect of any day in the year –
(a) on the day the ratepayer is in occupation of all or part of the hereditament, and
(b) the hereditament is shown for the day in a local non-domestic rating list in force for the year.
(2) In such a case the ratepayer shall be liable to pay an amount calculated by –
(a) finding a chargeable amount for each chargeable day, and
(b) aggregating the amounts found under paragraph (a) above.
(3) A chargeable day is one which falls within the financial year and in respect of which the conditions mentioned in subsection
(1) above are fulfilled.”
The chargeable amount for a chargeable day is, save in the case of charities which pay half rates, calculated in accordance with the formula (A x B) divided by C, where A is the rateable value shown for the day as regards the property, B is the non-domestic rating multiplier for the financial year and C is the number of days in the financial year: sections 43(4) and 44.
Different provision is necessarily made for NDR on unoccupied premises. Section 45(1) to (3) provides:
“(1) A person (the ratepayer) shall as regards a hereditament be subject to a non-domestic rate in respect of a chargeable financial year if the following conditions are fulfilled in respect of any day in the year –
(a) on the day none of the hereditament is occupied,
(b) on the day the ratepayer is the owner of the whole of the hereditament,
(c) the hereditament is shown for the day in a local non-domestic rating list in force for the year, and
(d) on the day the hereditament falls within a description prescribed by the Secretary of State by regulations.
(2) In such a case the ratepayer shall be liable to pay an amount calculated by –
(a) finding the chargeable amount for each chargeable day, and
(b) aggregating the amounts found under paragraph (a) above.
(3) A chargeable day is one which falls within the financial year and in respect of which the conditions mentioned in subsection (1) above are fulfilled.”
Under section 45(4)-(6) as originally enacted, NDR for unoccupied premises was chargeable at half the rate applicable to the premises if occupied, but that discount was removed by section 1 of the Rating (Empty Properties) Act 2007, subject to special provision for charities.
The 1988 Act refers to “hereditaments” which is defined by section 64 but for the purposes of this judgment it is sufficient to use the term “properties”. All the properties in respect of which NDR are claimed fall within the definition of “hereditaments”.
As appears from section 45(1), NDR are payable in respect of a property if four conditions are satisfied. First, on the day in question, the entirety of the property is unoccupied. No issue arises on the applicability of this condition in the present cases. Second, the person liable for the NDR must be “the owner” of the whole of the property. The “owner” is defined by section 65(1) as “the person entitled to possession of it”. As entitlement to possession connotes the exclusive entitlement to occupy the property (see Brown v City of London Corporation [1996] 1 WLR 1070 at 1080 per Arden J), it is not in dispute that the tenant under a lease of a property is the “owner” for these purposes. Third, the property must be shown for the day in question in a local non-domestic rating list in force for the year. Again, no issue arises in these cases on that condition. Fourth, on the day in question, the property must fall within a class prescribed by regulations, which in these cases are the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008. By regulations 3, all relevant non-domestic properties are prescribed for these purposes other than those described in regulation 4. Regulation 4 includes any property whose owner is a company “which is being wound up voluntarily” under the Insolvency Act 1986: regulation 4(k).
The schemes in issue in these cases that involved the grant of a lease to an SPV followed by the voluntary winding-up of the SPV sought to take advantage of the exception from NDR created by regulation 4(k). In those cases where the SPV was simply dissolved as a dormant company, the lease would vest as bona vacantia in the Crown or the Duchy of Lancaster or Cornwall (as appropriate). Whether NDR were in such circumstances payable by the Crown or either Duchy was not explored in submissions before us.
From this it can be seen that the lynchpin to the success of the avoidance schemes used in these cases was the grant of leases to the SPVs. If the leases could be disregarded either as shams or by the application of the Ramsay principle or if the SPVs could be disregarded by piercing their corporate veils, the schemes would not achieve their purpose and the defendant companies would be liable for NDR on the properties.
The pleaded cases
As these appeals arise from applications under CPR 3.4(2)(a) to strike out the particulars of claim on the ground that they disclose no reasonable grounds for bringing the claims, the focus must be on the cases pleaded by the local authorities, assuming in their favour that the pleaded facts are true.
I can take for these purposes the claim by Wigan Council against Property Alliance Group Limited.
Paragraph 4 of the particulars of claim reads as follows:
“4. It is the Claimant's contention that the Tax Scheme failed in the Defendant's objective of avoiding NNDR (remaining properly the liability of the Defendant) in that:
4.1. the Tax Scheme was no more than an artifice, or a set of contrived arrangements or transactions, of tax avoidance, effected by inter alia the establishment or use of a limited liability...
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