Woolway v Mazars

JurisdictionEngland & Wales
CourtSupreme Court
JudgeLord Sumption,Lord Neuberger,Lord Toulson,Lord Carnwath
Judgment Date29 July 2015
Neutral Citation[2015] UKSC 53

[2015] UKSC 53

THE SUPREME COURT

Trinity Term

On appeal from: [2013] EWCA Civ 368

before

Lord Neuberger, President

Lord Sumption

Lord Carnwath

Lord Toulson

Lord Gill (Scotland)

Woolway
(Appellant)
and
Mazars
(Respondent)

Appellant

Timothy Morshead QC

Daniel Kolinsky QC

(Instructed by HMRC Solicitors Office)

Advocate to the Court

David Forsdick QC

(Instructed by The Government Legal Department)

Heard on 11 February 2015

Lord Sumption

(with whom Lord Carnwath and Lord Toulson agree)

1

Local authority rates are the oldest tax in continuous existence in England, having originally been introduced in the reign of Queen Elizabeth I by the Poor Relief Act 1601 (43 Eliz 1, c 2). Historically, they were payable in respect of the rateable occupation of hereditaments, and that continues to shape the law in this area even though non-domestic rates are today imposed on unoccupied hereditaments also. The core concepts underlying the assessment of rates are that they are a tax on property and not on persons or businesses, and that the "hereditament" is the unit of assessment. Each hereditament is separately identified in the rating list and separately assessed, notwithstanding that the same occupier may have more than one. The question at issue on this appeal is how different storeys under common occupation in the same block are to be entered in the rating list for the purpose of non-domestic rating.

2

Tower Bridge House is an eight-storey office block in St Katherine's Way in the London Borough of Tower Hamlets. In plan it is a U-shaped building. The open space between the three wings is filled by a covered atrium, with a central lift shaft containing six high-speed lifts serving the first to seventh floors of the building. There is a common reception area on the first floor serving the entire building. Mazars is a firm of chartered accountants which occupies the non-common areas of the second and sixth floors under separate leases. The first, third, fourth and fifth floors are occupied by the solicitors Reynolds Porter Chamberlain. The seventh floor is divided between two other occupants.

3

Where different parts of an office building are occupied by the same occupier, the ordinary practice of the valuer, and apparently of valuers generally, is to enter them as a single hereditament if they are contiguous, but as separate hereditaments if they are not. In accordance with this practice, in the 2005 rating list, the non-common parts of the two storeys occupied by Mazars were entered as separate hereditaments. The non-common parts of the first storey occupied by Reynolds Porter Chamberlain were entered as one hereditament, and the non-common parts of the third, fourth and fifth floors occupied by the same firm were together entered as another hereditament. Each of the spaces separately occupied on the seventh floor was also entered as one hereditament. In February 2010, Mazars applied to merge the two entries for the spaces demised to them to form a single hereditament, with an allowance for fragmentation of 10%. They proposed that the merger should take effect from 26 November 2007, when they had begun to occupy the two floors, and contended that although physically separate, they were functionally inter-dependent. The Valuation Tribunal for England agreed that the two entries should be merged, and allowed 5% for fragmentation. The Valuation Officer appealed to the Upper Tribunal (Lands Chamber). The case came before the President of the Chamber, who affirmed the Valuation Tribunal's decision as to merger, but held that there should be no fragmentation allowance. The Valuation Officer has appealed to this court on the merger issue, but the disallowance of Mazars' claim to a fragmentation allowance has left them with no financial interest in the outcome. They have not therefore appeared on the further appeal of the Valuation Officer to this court. We have, however, been assisted by Mr Forsdick QC, who appeared as the Advocate of the Court, and whose submissions have been of great value in elucidating a novel and difficult point.

4

"Hereditament" is a somewhat archaic conveyancing term which as a matter of ordinary legal terminology refers to any species of real property which would descend upon intestacy to the heirs at law: see section 205(1)(ix) of the Law of Property Act 1925. In a conveyance, there is no problem about its bounds. They will be identified by the deed. But notwithstanding more than four centuries of experience, the question how a hereditament is to be identified for rating purposes remains in important respects unclear. Section 64(1) of the Local Government Finance Act 1988 defines a hereditament as anything which would before the passing of the Act have been a hereditament for the purposes of section 115(1) of the General Rate Act 1967. That means a

"property which is or may become liable to a rate, being a unit of such property which is, or would fall to be, shown as a separate item in the valuation list."

The result, in the absence of further statutory definition, is that the meaning of "hereditament" is left to be elucidated by the courts in accordance with the principles underlying the rating Acts.

5

The question which arises in a case like this is a very simple one. Given that non-domestic rates are a tax on individual properties, what is the property in question? In principle, the fact that the same occupier holds two or more properties is irrelevant to the rateable status of any of them. He must pay rates separately on each. If the law is to be rational and consistent, the circumstances in which a continuous territorial block is to be treated as several separate properties or in which geographically separate properties are to be treated as one for rating purposes, must be determined according to some ascertainable and defensible principle.

6

There are two principles on which these questions might be decided. One is geographical and depends simply on whether the premises said to constitute a hereditament constitute a single unit on a plan. The other is functional and depends on the use that is or might be made of it. The distinction was first applied in a series of rating cases in Scotland, where the question was essentially the same as the one which arises on this appeal, namely whether property should be assessed for local rates as a number of distinct heritable subjects or as unum quid ("one thing"). These cases establish that the primary test is geographical, but that a functional test may in certain cases be relevant either to break up a geographical unit into several subjects for rating purposes or to unite geographically dispersed units in unum quid. By far the commonest application of the functional test is in derating cases. In these cases, the functional test serves to divide a single territorial block into different hereditaments where severable parts of it are used for quite different purposes. Thus a garage used in conjunction with a residence within the same curtilage will readily be treated as part of the same hereditament, whereas a factory within the same curtilage which is operated by the same occupier may not be. There are, however, rare cases in which function may also serve to aggregate geographically distinct subjects. It is with this latter question that the present appeal is concerned.

7

In Bank of Scotland v Assessor for Edinburgh (1890) 17 R 839, the Lands

Valuation Appeal Court dealt with a number of rating appeals involving banks with office premises used in conjunction with nearby residential premises occupied by bank employees. There were three categories of residential premises: (i) dwellings which were in buildings separate from the bank's offices; (ii) dwellings which were under the same roof as the commercial offices with internal communication between them; and (iii) dwellings which were under the same roof but with no internal communication between them, or none that was in use. Lord Trayner held that in case (i) the dwellings fell to be valued separately while those in cases (ii) and (iii) were unum quid with the commercial offices. Lord Wellwood agreed with him on cases (i) and (ii), but not on case (iii) which he would have directed to be separately valued. However, the underlying principle applied by both judges was the same. They applied the geographical principle, distinguishing cases where the various bank buildings formed a continuous territorial block from cases where they did not. In those cases where the different buildings did not form a continuous territorial block, they could be treated as unum quid only where there was a necessary functional connection between them. Lord Trayner said at p 843:

"In the case of the Commercial Bank I think the assessor has gone wrong in including the messengers' houses as part of the bank. These houses form no part of the bank buildings; they are separate houses in the adjoining street, no doubt sufficiently near to the bank to be convenient and suitable for the bank servants, but still no part of the bank buildings, and therefore no part of the unum quid. The assessor in support of the view he has adopted referred to the case of M'Jannet, 10 R 32, but I do not think that that case has any application here. It was decided in that case that the conservatory, stables, and outhouses connected with a dwelling-house were not to be separately valued, but were to be regarded and valued as a unum quid. I agree entirely with that decision. The different parts of the subject to be valued lay together, and were within the one enclosure; they were the different parts which together went to make up the establishment. But although the stables, for example, were held in that case to be part of the residence and to be so valued, it does not follow that stables are in every case to be valued as part of the residence to which they are an...

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