Rating – Non-domestic rates – Special purpose vehicles – Respondent landowners granting leases of properties to SPVs as part of NDR avoidance scheme – Appellant local authorities seeking recovery of NDR from respondents – Respondents applying to strike out claims – High Court granting applications in part – Court of Appeal allowing respondents’ appeal – Appellants appealing – Whether court entitled to disregard SPVs by piercing corporate veils – Whether grant of leases abuse of legislation allowing court to disregard leases under Ramsay principle – Appeal allowed
The respondents were developers that owned properties subject to non-domestic rates (NDR). They sought to avoid liability to NDR when the properties were unoccupied by entering into rates avoidance schemes under which special purpose vehicle companies (SPVs) took short leases of the properties and became liable to pay the relevant taxes. No payments were ultimately made by those SPVs as they were then either wound up or struck off the register of companies.
The appellant local authorities issued proceedings in the High Court for recovery of NDR from the respondents. They argued, amongst other things, that the respondents were still liable to make the NDR payments because the arrangements with the SPVs were: (i) an abuse of corporate personality allowing the court to “pierce the corporate veil”; and/or (ii) an abuse of the legislation allowing the court to disregard the process in accordance with the principle of statutory construction in WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300.
The respondents applied to strike out the claims. The High Court struck out those parts relating to the Ramsay principle but considered that there was an arguable case regarding the piercing of the corporate veil: [2017] EWHC 3461 (Ch).
The Court of Appeal allowed the respondent’s appeal and struck out the appellants claims, determining that it was not open to the courts to pierce the SPVs’ corporate veil and that the leases could not be disregarded by applying the Ramsay principle: [2019] EWCA Civ 364; [2019] EGLR 20. The appellants appealed.
Held: The appeal was allowed.
(1) It was common ground that the leases granted to the SPVs were not shams so that the SPVs were entitled to possession as a matter of real property law. However, neither of the schemes entered into had any business or other “real world” purpose as their sole purpose was to avoid liability to pay business rates. The SPVs had no assets or business, and it was never intended that they would ever pay the empty rate. Both versions of the scheme relied for their effectiveness over time upon administrative inertia.
The Ramsay principle was usually deployed in relation to tax avoidance schemes but it was not in its essentials particular to tax, being based on the modern approach to the interpretation of all legislation: The court had to ascertain the class of facts intended to be caught by the charge or exemption by interpreting the relevant part of the statute in the context of the whole statutory scheme and its purpose; and then decide whether the relevant facts, viewed realistically and in the round, fell within the class. Both interpretation and application shared the need to avoid tunnel vision.
It was clear from the various exemptions in regulation 4 of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 and the zero-rating scheme in section 45A of the Local Government Finance Act 1988 that the purpose of charging rates for unoccupied property was to deter owners from leaving property unoccupied for their own financial advantage and encouraging owners to bring empty property back into use for the benefit of the community. In relation to the central purpose of providing an incentive to bring unoccupied property back into use, parliament’s intention clearly focused the burden of the rate precisely on the person who had the ability, in the real world, to achieve that objective.
(2) The definition of the “owner” of a hereditament in section 65(1) of the 1988 Act as “the person entitled to possession of it” denoted, in a normal case, the person who as a matter of the law of real property had the immediate legal right to actual physical possession of the relevant property. However, in the unusual circumstances of this case, parliament could not have intended that person to be the SPV under a scheme in which the SPV was designed to have no real or practical ability to exercise its legal right to possession and where that legal right had been conferred for no purpose other than the avoidance of rates liability. The SPVs did not become “entitled to possession” for the purposes of the 1988 Act. That entitlement remained with the respondents which had the practical ability to decide whether to leave the property unoccupied. Properly construed, section 65(1) of the 1988 Act was concerned with a real and practical entitlement which included the ability either to occupy the property or to put someone else into occupation. Accordingly, there was a triable issue whether the respondents remained liable for business rates throughout the duration of the leases.
(3) The defendants’ alternative argument that the respondents’ interposition of the SPVs solely to avoid rates liability justified “piercing the corporate veil”, fell away in the light of the court’s decision on the statutory interpretation ground as it depended in the SPVs being “owners”. However, “piercing the corporate veil” was a metaphor that was liable to obscure more than it illuminated. In Prest v Petrodel Resources Ltd [2013] 2 AC 415, two distinct principles were identified within the concept. The appellants sought to rely on the “evasion principle” where a person was under an existing legal obligation which they deliberately evaded by interposing a company under their control. The difficulty was that the interposition of the SPV, and the grant of the lease, did not evade enforcement of an existing legal obligation because rates liability accrued day by day. Before the lease was granted, the respondents were liable for any accrued rates and once the lease was granted, only the SPV was liable. Therefore, the interposition of the SPV itself was not an abuse of corporate personality as the abuse was the way in which the SPV’s liability for rates was handled. On the assumed facts of this case, the Court of Appeal was correct to decide that there was no principle justifying piercing the corporate veil.
Robin Mathew QC, James Couser and Stephen Ryan (instructed by ASW Solicitors, of Liverpool) appeared for the appellants; Kevin Prosser QC and Nicholas Trompeter (instructed by Addleshaw Goddard, of Manchester) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Rossendale Borough Council and another v Hurstwood Properties (A) Ltd and others
