Rating — General Rate Act 1967, section 20(1)(a) and (b) — Valuation of factory situated outside, but in near neighbourhood of, enterprise zone — Rebus sic stantibus rule — Meaning of ‘state’ in section 20(1) — Appeal from decision of Court of Appeal — Approach of local valuation court and Lands Tribunal vindicated by House of Lords — Subject hereditament situated within a mile of the Lower Swansea Valley Enterprise Zone — Common ground that one result of the zone was to depress rental values of commercial and industrial premises situated outside, but in the near neighbourhood of, the zone — This was because operation within the zone was attended by fiscal and numerous administrative and other advantages — The parties agreed that the appropriate rateable value of the subject premises would be £36,500 if the consequences of the zone were taken into account and £45,500 if they were not — The Court of Appeal had broadly accepted the argument of the valuation officer that the word ‘state’ in section 20(1)(a) and (b) covered only physical factors or factors which affected the physical enjoyment of the hereditament itself or of other premises in the locality and did not extend to advantages or disadvantages resulting from primary or subordinate legislation — The appellant ratepayers submitted that the word covered the state of affairs created by the statutory designation of the enterprise zone, which produced advantages for those premises which were within the zone and corresponding disadvantages for those outside it, although in the same locality — Held, reversing the decision of the Court of Appeal, that the word ‘state’ should be given a wide construction in both para (a) and para (b) of section 20(1), so as to include intangible as well as physical advantages and disadvantages — There was no good reason for disregarding any of the circumstances which would ordinarily be taken into account under the rebus sic stantibus rule — The advantages of the enterprise zone were an intangible factor which went to the state of the locality as regards other premises situated there — The value of hereditaments in the same locality which did not enjoy the advantages of the zone was reduced — Thus the effects of the zone on the value of the appellants’ factory were properly to be taken into account in applying section 20 — Appeal allowed
The following
cases are referred to in this report.
Dawkins v Ash Brothers & Heaton Ltd [1969] 2 AC 366; [1969] 2 WLR
1024; [1969] 2 All ER 246; (1969) 67 LGR 499, HL
Port of
London Authority v Orsett Union Assessment
Committee [1920] AC 273, HL
Seafield’s
Trustees v Assessor for Inverness-shire 1941
SC 271; 1941 SLT 270
This was an
appeal by Addis Ltd, the occupiers of a factory outside, but in the near
neighbourhood of, the Lower Swansea Valley Enterprise Zone, from the decision
of the Court of Appeal (reported at [1987] 1 EGLR 168; (1987) 281 EG 683)
reversing the decision of the Lands Tribunal (Mr J H Emlyn Jones) (reported at
(1984) 271 EG 291) in favour of the appellants.
Guy Roots
(instructed by McKenna & Co) appeared on behalf of the appellants; William
Glover QC and David Mole (instructed by the Solicitor of Inland Revenue)
represented the respondent valuation officer.
In his speech,
LORD KEITH OF KINKEL said: The issue in this appeal concerns the proper
interpretation of section 20 of the General Rate Act 1967. That section, so far
as material, provides:
20(1) For the purposes of any alteration of a
valuation list to be made under Part V of this Act in respect of a hereditament
in pursuance of a proposal, the value or altered value to be ascribed to the
hereditament under section 19 of this Act shall not exceed the value which
would have been ascribed thereto in that list if the hereditament had been
subsisting throughout the year before that in which the valuation list came
into force, on the assumptions that at the time by reference to which that
value would have been ascertained: (a) the hereditament was in the same
state as at the time of valuation and any relevant factors (as defined by
subsection (2) of this section) were those subsisting at the last-mentioned
time; and (b) the locality in which the hereditament is situated was in
the same state, so far as concerns the other premises situated in that locality
and the occupation and use of those premises, the transport services and other
facilities available in the locality, and other matters affecting the amenities
of the locality, as at the time of valuation.
(2) In this section, the expression ‘relevant
factors’ means any of the following, so far as material to the valuation of a
hereditament, namely (a) the mode or category of occupation of the
hereditament; (b) the quantity of minerals or other substances in or
extracted from the hereditament; or (c) in the case of a public house,
the volume of trade or business carried on at the hereditament; and in
paragraph (c) of this subsection the expression ‘public house’ means a
hereditament which consists of or comprises premises licensed for the sale of
intoxicating liquor for consumption on the premises where the sale of such
liquor is, or is apart from any other trade or business ancillary or incidental
to it, the only trade or business carried on at the hereditament.
(3) References in this section to the time of
valuation are references to the time by reference to which the valuation of a
hereditament would have fallen to be ascertained if this section had not been
enacted . . .
This section
has been amended from time to time since its original enactment, but none of
the amendments is relevant for present purposes.
The
hereditament which is the subject of the appeal is a factory occupied by the
appellants and situated near Swansea in South Wales. It lies just under a mile
to the south of an area of land which by order dated May 18 1981 the Secretary
of State for Wales, under powers contained in the Local Government, Planning
and Land Act 1980, designated as the Lower Swansea Valley Enterprise Zone. The
Designation Order 1981 (SI 1981 no 757) came into effect on June 11 1981. The
nature of an enterprise zone is thus described in the decision of the Lands
Tribunal [1984] RA 137, 139-140:
The
Government’s purpose in setting up Enterprise Zones is to encourage industrial
and commercial activity in run-down areas by the removal of certain tax burdens
and by the relaxation or speeding up of the application of certain statutory
and administrative controls. The benefits conferred on enterprises operating
within an Enterprise Zone run for a period of ten years from the date when the
zone comes into effect and cover both new and existing industrial enterprises
within the zone. The available benefits are as follows: (1) Exemption from
development land tax; (2) Exemption from rates on industrial and commercial
property; (3) 100% allowances for corporation
buildings; (4) Applications for certain customs facilities from firms within
the zones are processed as a matter of priority and certain criteria are
relaxed; (5) Industrial development certificates are not needed; (6) Employers
are exempt from industrial training levies and from the requirement to supply
information to industrial training boards; (7) A greatly simplified planning
regime; developments that conform with the published scheme in each zone will
not require individual planning permission; (8) Those controls remaining in
force are to be administered more speedily; (9) Government requests for
statistical information are reduced.
It is agreed
between the parties that one result of the setting up of the Lower Swansea
Valley Enterprise Zone has been to depress the rental values of commercial and
industrial premises situated outside, but in the near neighbourhood of, the
designated area. This is because it is substantially more attractive to operate
such concerns inside that area. The parties are also agreed that the appropriate
rateable value of the appellant ratepayers’ factory is £36,500 if the
consequences of the enterprise zone are taken into account, and £45,500 if they
are not. The question in dispute is whether or not, on a proper construction of
section 20 of the Act of 1967, it is correct to take into account these
consequences in determining, upon a proposal made by the ratepayers on March 18
1981, the rateable value of the factory at that time. It is common ground that
although the proposal was made before the date of the order designating the
enterprise zone, the prospect of it had already produced the result described
above. The local valuation court and the Lands Tribunal decided that the
consequences of the enterprise zone were properly to be taken into account, but
the Court of Appeal (O’Connor and Woolf LJJ and Sir George Waller) took the
contrary view. The ratepayers now appeal, with leave given here, to your
Lordships’ House.
The principal
enactment prescribing the manner of valuation for rating of hereditaments in
England and Wales is section 19 of the Act of 1967. There is no need to recite
its relevant provisions, which are set out in the judgment of Woolf LJ in the
Court of Appeal. One of the features of a valuation under section 19 is that
the hereditament is to be valued in its actual state — rebus sic stantibus
— at the date of the valuation, with all the advantages and disadvantages which
it then possesses. It is clear that if the ratepayers’ factory were to be
valued under section 19 alone as at the date of the proposal in the present
case the disadvantage which it suffers through being outside but close to the
enterprise zone would be a factor properly to be taken into account. However,
the proposal is one made under section 69 of the Act of 1967, for an alteration
of the valuation list which came into force on April 1 1973, and in relation to
such a proposal the effect of section 19 is modified by section 20. By virtue
of that section the valuation is not to exceed that which would have been
ascribed to the hereditament if it had been in existence throughout the year
before April 1 1973. The principal purpose is to secure that where a
hereditament comes to be valued for the first time or to be revalued as a
result of alterations, in a year after that in which the valuation list came
into force, the value is to be at the same general level as was applicable for
purposes of the original list. As the sidenote to section 20 puts it, the
valuation is to be according to the tone of the list. This avoids the injustice
which would otherwise result in a period of inflation involving a general
increase in rental values. If the valuation of a new hereditament were made
during such a period on the basis of current rental values the occupier would
have to pay higher rates than the occupier of a comparable hereditament subject
to a valuation made in 1973. There is, of course, nothing to prevent a
valuation officer making a proposal under section 69 of the Act for an increase
in the valuation of a hereditament already in the list, but, since the general
level of rental values to be applied would be that prevailing immediately
before the list came into force, the proposal would have no actual effect
unless there had been some material change of circumstances affecting the value
to be arrived at upon that basis.
Although the
valuation to be made under section 20 is not to exceed that which would have
been ascribed to the hereditament if it had been in existence immediately
before the valuation list came into force, subsection (1) provides that certain
matters affecting the hereditament at the time when the valuation is actually
made are to be assumed to have existed at the earlier time. These matters are
specified in paras (a) and (b). The question is whether the
specification of these matters restricts the application of the rebus sic
stantibus rule so as to exclude some factors which would properly have had
to be taken into account if the valuation had fallen to be made under section
19 alone, in particular, in the present case, the effect on value of the
enterprise zone.
The argument
for the valuation officer, which was accepted by the Court of Appeal and
renewed before this House, was that the word ‘state’ in paras (a) and (b)
of section 20(1) was intended to cover only physical factors or factors which
affected the physical enjoyment of the hereditament itself or of other premises
in the locality. The ratepayers, for their part, contended that it embraced
also advantages and disadvantages resulting from primary or subordinate
legislation. Reference was made to a passage in the speech of Lord Buckmaster
in Port of London Authority v Orsett Union Assessment Committee
[1920] AC 273, at p 305:
The actual
hereditament of which the hypothetical tenant is to be determined must be the
particular hereditament as it stands, with all its privileges, opportunities
and disabilities created or imposed either by its natural position or by the
artificial conditions of an Act of Parliament.
The state of a
hereditament, so it was maintained, included opportunities or disabilities
created by Act of Parliament. The making of a demolition order under statutory
powers came into this category, such an order having been held to be a factor
properly to be taken into account in arriving at a valuation in Dawkins
v Ash Brothers & Heaton Ltd [1969] 2 AC 366. Likewise, the state of
a locality so far as concerns the other premises situated there included
advantages to these premises resulting from the designation under statutory
powers of an enterprise zone. It was these advantages which reduced the value
of the subjects of appeal, which were admittedly in the same locality.
The broad
purpose of section 20 was to secure that a hereditament which, for one reason
or another, fell to be valued at a time after the coming into force of a
valuation list should be valued on the basis of the general level of values
prevailing when the list was made up. It is not apparent that there was any
good reason for requiring the disregard of any of the circumstances which would
ordinarily be taken into account under the rebus sic stantibus rule. If
any of such circumstances were to be disregarded, the result would necessarily
be to some extent artificial. The expression rebus sic stantibus raises
the concept of a certain ascertainable state of affairs. It would involve no
undue straining of language to conclude that when para (a) of section
20(1) refers to the hereditament being ‘in the same state as at the time of the
valuation’ the meaning is that the whole state of affairs affecting the
hereditament is to be assumed to be the same, at the time of coming into force
of the last valuation list, as it is at the time when the valuation is being
made. The result would be that the rebus sic stantibus rule would fall
to be applied to its full extent. But the reference to a defined category of
specified relevant factors makes this difficult, and moreover it would make
para (b) unnecessary. Since, however, there is no readily perceptible
reason for limiting the application of the rebus sic stantibus rule, the
word ‘state’ should in my opinion be given a wide construction so as to include
intangible as well as physical advantages and disadvantages. Thus I would think
it appropriate to treat the making of a demolition order, such as was held to
have a relevant effect on value in Dawkins v Ash Brothers &
Heaton Ltd [1969] 2 AC 366, as going to the state of the hereditament.
Another instance would be the prospect of requisition, which was held to be a
relevant factor in the Scottish case of Seafield’s Trustees v
Assessor for Inverness-shire 1941 SC 271. Para (a) is not, of
course, directly in point in the present case. It is para (b) which the
ratepayers seek to apply, on the ground that the state of the locality in which
the hereditament is situated includes the relative advantages enjoyed by some
other premises there situated through the creation of the enterprise zone.
‘State’ must have the same wide meaning in para (a) that it has in para
(b). I would therefore hold that the existence of these advantages is an
intangible factor which goes to the state of the locality as regards other
premises situated there. One effect of the circumstances affecting those other
premises is to reduce the value of hereditaments in the same locality which do
not enjoy the same advantages because they are not in the enterprise zone. I am
therefore of opinion that on a proper construction of section 20 the effects of
the enterprise zone on the value of the ratepayers’ factory are properly to be
taken into account, and would allow the appeal accordingly.
LORDS
ELWYN-JONES, BRANDON OF OAKBROOK, OLIVER OF AYLMERTON and GOFF OF CHIEVELEY
agreed with the speech of Lord Keith of Kinkel and would allow the appeal for
the reasons given in it. They did not add anything of their own.
Appeal
allowed.
