Rating – Non-domestic rates – Hereditament – Power station fuelled by natural gas supplied though pipeline – Power station and pipeline entered in rating list as single hereditament – Whether fulfilling tests of contiguity and functional link – Whether properly to be listed as two separate hereditaments Appeal dismissed
The respondent ratepayer operated a power station that was fuelled by natural gas supplied by an underground pipeline. The power station used combined cycle generating technology, in which turbines fuelled by the natural gas produced electricity and steam and the steam was then used generate additional power. Approximately 100m of the pipeline lay within the power station site, to which it was joined at a control valve inside the boundary fence. At the other end of its 7.83 mile length, it met the National Transmission System at a compound occupied by the respondent and the National Grid. It was common ground that the respondent was the occupier of both the power station and the pipeline.
The appellant valuation officer entered the power station and pipeline in the 2005 rating list as two separate hereditaments, with rateable values of £980,000 and £339,000 respectively. In August 2011, the Valuation Tribunal for England (VTE) accepted a proposal by the respondent, which had earlier been rejected by the appellant, to merge the two entries and list the power station and pipeline together as a single hereditament with effect from April 2005. In reaching that decision, the VTE referred to the tests of contiguity and essential functional link set out by the Court of Appeal in Gilbert (VO) v S Hickinbottom & Sons Ltd [1956] 2 QB 40. It found that there was both a direct physical connection and also an essential functional link between the power station and the pipeline, since one could not exist without the other.
The appellant appealed. He contended that the VTE had erred in giving no weight to the limited degree of contiguity between the power station and the pipeline, which was no more than was necessary to enable the supply of gas, or to the length of the pipeline as a structure in its own right.
Held: The appeal was dismissed.
A decision on whether two properties should be entered in the rating list as one hereditament or two involved questions of fact and degree; accordingly, the outcome of every case would turn on its particular facts. In the instant case, the VTE had correctly concluded that the power station and the pipeline should be entered in the rating list as a single hereditament. The proper approach, both generally and in cases involving pipelines, remained that set out by the Court of Appeal in Gilbert (VO) v S Hickinbottom & Sons Ltd [1956] 2 QB 40 and the principles there set out provided the starting point for the exercise that the tribunal had to undertake. The VTE had correctly found that the power station and the pipeline were contiguous and stressed the strong functional relationship between the two. Both the test of contiguity and the functional test were amply satisfied since there was a physical connection between the power station and the pipeline and the two were mutually dependent in their functions. Those were powerful and indeed crucial considerations.
The word “contiguity” was used in the present context where one piece of property or infrastructure touched another, as opposed to two things being merely adjacent without touching. It did not depend on there being more than a single point of contact or require a series of links between one element and the other; it was sufficient that there was physical contact, which might or might not be necessary to achieve a functional connection as well. In the instant case, it could not be disputed that the pipeline was contiguous to the power station since it had to be connected to the power station to serve it by supplying it with fuel; if it were not so connected it would be useless.
In the circumstances of the case, the test of contiguity and the test of functional relationship or connection were not divorced from each other since, in order for the test of functional relationship to be met, that of contiguity had to be met also. The functional connection between the pipeline and power station was one of mutual dependence. That dependence was not lessened by the length of the pipeline. Assuming that it had to follow the route it did, it could not be any shorter and still perform its only function of supplying the power station with natural gas. Accordingly, the length of the pipeline did not make the functional relationship between the pipeline and the power station any less vital. The distance covered by the pipeline did not go against the conclusion that it and the power station formed a single functional unit.
In discharging its task as a fact-finding tribunal, neither the VTE nor the Upper Tribunal on appeal was likely to derive much assistance from other cases where one view or another had been reached on a different set of facts. It was neither necessary nor appropriate for the tribunal to be presented with a large amount of evidence about the approach taken by valuation officers elsewhere. The evidence given on the instant appeal about other decisions involving pipelines did not underline any of the conclusions reached on the facts of the case or offend the principle of consistency in decision-making: Edwards (VO) v BP Refinery (Llandarcy) Ltd [1974] RA 1 and Slough Heat & Power Ltd v Thompson (VO) [2009] RA 1 and distinguished.
Timothy Morshead QC (instructed by the legal department of HMRC) appeared for the appellant; Daniel Kolinsky (instructed by Gerald Eve LLP) appeared for the respondent.
Sally Dobson, barrister
