Judgments - Regina v. Central Valuation Officer and another (Respondent) ex parte Edison First Power Limited (Appellants)

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    101. The transfer of the power stations from central to local listing had two consequences. First, each of them was now rated individually as a separate hereditament and not as an unidentified and undifferentiated part of a larger whole. Secondly, changes in its DNC would now be taken into account with immediate effect and not merely with effect from the beginning of the following rating year. The two features are interrelated; for annual adjustment of the total is (and has always been) a feature of global or cumulo rating. It is not a necessary concomitant of formula rating, as is evidenced by the treatment of the power stations after they transferred to local lists.

Is the ESI Order authorised by the 1988 Act?

    102. It is convenient to deal with this question in two stages, first by disregarding any element of double taxation and considering the question as a pure matter of construction of the language of the 1988 Act. The question is whether, on its true construction, para. 3(2) of the Sixth Schedule to the 1988 Act authorises so radical a departure from the conventional principles of rating as that which Part III of the ESI Order established.

    103. I would unhesitatingly answer this question in the affirmative. Indeed, but for the opinion of my noble and learned friend Lord Bingham of Cornhill, which I have had the advantage of reading in draft, I would have regarded the contrary as unarguable. Paragraph 3(2) of the Sixth Schedule to the 1988 Act gives the Secretary of State express power to disapply the conventional method of valuation and substitute a different, and it follows an unconventional, one. It expressly authorises him to specify the rateable value of PowerGen's centrally rated hereditaments as a single global sum, and that is what he did for the 1995-6 rating year. There are no restrictions on the methods which he may employ in arriving at the specified figure, save no doubt that they must not be unreasonable or irrational; and Edison does not challenge them. The 1988 Act also authorises the Secretary of State to prescribe rules for determining the rateable value of such hereditaments, and that is what he did for each of the following years. There are no restrictions on the nature of the rules which he may prescribe, and save in one respect Edison does not challenge them either. It confines its challenge to the frequency with which the global figure is to be adjusted to reflect changes in PowerGen's total DNC.

    104. This makes it necessary to examine the reason why the Secretary of State chose to prescribe rules which require the global figure shown in the central lists to be adjusted annually while leaving changes to the rateable value of hereditaments shown on local lists to be made on a daily basis if necessary. In approaching this question it should be borne in mind that annual adjustment was a feature of the cumulo system under which public utilities had been rated ever since 1948 and continued to be rated under provisions contained in the General Rating Act 1967. There had never been a mechanism for altering the global or cumulo rateable value of their hereditaments during the course of a rating year. This is some indication, to say the least, that it had a rational basis and was adopted with the approval of Parliament.

    105. In my opinion its rationale is obvious. When an operational unit such as a power station is rated as an individual hereditament and by reference to a proxy such as its generating capacity, effect must be given to changes in its capacity as soon as they occur if its rateable value is not to become seriously distorted. But when a large number of such hereditaments are taken together and rated as a single whole, changes in the capacity of individual units (in both directions) are likely to be both far more frequent and much less significant. There is not the same need to take individual account of every such change as soon as it occurs; and changes in total capacity can reasonably be given effect less frequently.

    106. In the case of some utilities more frequent adjustments would be quite impractical. British Gas plc, for example, owned or occupied many thousands of miles of gas supply pipeline which were embraced in the specified global valuation figure at the date of the relevant statutory instrument. There will have been a great many variations in the extent of its operational holdings during the course of a rating year. The specification of a global figure avoids the need for every such variation to be individually assessed for its significance as and when it occurs, a process which would be required under conventional rating methods. But it is inherent in a system of en bloc or cumulo rating that the amount of a ratepayer's liability will not necessarily have to change from day to day in order to reflect every change in the individual hereditaments which it occupies.

    107. While abandonment of the system of annual adjustment which had previously obtained would not have been completely impractical in the case of PowerGen, it would have meant a large number of adjustments (in each direction) being made each year and would have been productive of much administrative inconvenience without any significant countervailing advantage in accuracy. The ESI Order followed extensive consultations with the industry in which the principle of annual recalculation of rateable values was specifically drawn to its attention and accepted by an industry working party. Moreover it was manifest on the face of the ESI Order when it was laid before Parliament and affirmed by resolution of each House.

    108. These considerations would not, of course, prevail if the terms of the 1988 Act did not permit annual adjustment. Edison places much reliance on the fact that Section 54(4) of the 1988 Act requires the chargeable amount of hereditaments treated as shown in a central list to be ascertained for each chargeable day. This is necessary in the case of local list rating, which is based on rateable occupation for the day. But it serves no useful purpose under the form of central rating which the Secretary of State prescribed by Part III of the ESI Order. This, Edison says, shows that insofar as it does not make provision for daily revision the ESI Order is ultra vires.

    109. But this consequence simply does not follow. The presence of Section 54(4) is sufficiently explained by the fact that, as foreshadowed in the Consultation Paper, the Secretary of State is authorised to make different schemes for different industries and is not required to disapply conventional rating for every industry subject to central list rating. Provision needed to be made for the rateable value of property entered on a central list to be determined in a conventional way and by reference to rateable occupation for the day. On any view Section 54(4) cannot be said to be otiose. Edison might have had a point if the ESI Order made it impossible to do the calculation; but it merely made it unnecessary. The calculation can still be done; it merely produces the same result despite changes in the composition of the hereditaments which are treated as shown in the list.

    110. Edison also relies on Section 67(9A), which it says indicates that a designated person is not to remain liable for rates assessed by reference to the value of hereditaments which he does not own or occupy. But Section 67 (9) and (9A) are concerned with the contents of central lists. They indicate that the designated person is not to remain liable for rates in respect of hereditaments which he does not own or occupy. They say nothing about the method by which the global rateable value of the hereditaments which he does occupy is to be determined.

    111. In my opinion the language of the enabling provision of the 1988 Act is sufficiently wide to entitle the Secretary of State to prescribe any method of valuation however far it departs from conventional principles, provided only that it is not unreasonable or irrational. There is certainly nothing in the 1988 Act to indicate that he must depart from long established practice and require the global or cumulo figure in a central list to be adjusted more frequently than once a year.

    112. I must now turn to the second stage of the enquiry and consider whether I should modify my opinion because of the element of double taxation to which Part III of the ESI Order is said to give rise.

Is there an element of double taxation?

    113. Carnwath J held that there clearly was an element of double assessment. From 19 July 1999 and for the remainder of the rating year the Secretary of State received payments of rates based on the DNC of the two power stations from both PowerGen and Edison. Simon Brown LJ observed that the situation was not that PowerGen was continuing to pay central rates on power stations no longer in its occupation. Once they were disposed of they ceased to be treated as shown in the central list. It was rather that PowerGen was not entitled to a revaluation of its remaining hereditaments until the beginning of the following year. May LJ, who agreed with him, took the view that this did not amount to "straightforward double taxation". Dyson LJ considered that it amounted to double assessment in substance if not in form. In an impressive dissenting judgment he said:

    "As a matter of form, it may be said that after the date of transfer PowerGen was no longer liable to pay rates in respect of the power stations, because they had ceased to be treated as shown on the central list. This is because section 53(3) provides that the central list must show the rateable value of the hereditaments that are shown on the list. But in reality, the position was otherwise. After the transfer, the rateable value of the remaining hereditaments remained unchanged; it continued to reflect the previous value ascribed to the two power stations, and PowerGen continued to be liable (on a daily basis) for rates as before the transfer. The method of calculation and the amount payable were unaffected by the transfer. In reality, therefore, PowerGen continued to be liable to pay rates in respect of the two power stations notwithstanding the transfer in respect of a period during which Edison was also liable to pay rates calculated in more or less the same way in respect of the same two power stations."

    114. My Lords, I have no doubt, and the Secretary concedes, that Dyson LJ's analysis of the effect of the legislation is correct, and that the question has to be addressed as a matter of substance and not as a matter of form. I also have no doubt that it is generally regarded as oppressive for the same person to be taxed twice over in respect of the same matter: IRC v Clifforia Investments Ltd [1963] 1 WLR 396; IRC v FS Securities Ltd [1964] 1 WLR 742 at p 751. The present, however, is not such a case.

    115. There is not, in my opinion, necessarily the same objection to double recovery where two different persons are taxed in respect of the same matter. In Furniss v Dawson [1984] AC 474 at p 525 Lord Brightman observed that there was an element of double taxation whenever a shareholder sells at a profit his shares in a company that has itself realised a capital asset at a profit, but that he did not see any undesirable element of double taxation in such cases.

    116. This shows that the presumption against double taxation is not a strong presumption which gives effect to a high constitutional norm, like the presumptions against the abrogation of the privilege against self-incrimination or legal professional privilege. It is rather a species of a wider genus, viz. the presumption that Parliament intends to act reasonably: see IRC v Hinchy [1961] AC 748 at p 767 per Lord Reid. The Courts will presume that Parliament did not intend a statute to have consequences which are objectionable or undesirable; or absurd; or unworkable or impracticable; or merely inconvenient; or anomalous or illogical; or futile or pointless.

    117. But the strength of these presumptions depends on the degree to which a particular construction produces an unreasonable result. The more unreasonable a result, the less likely it is that Parliament intended it: see (in a contractual context) Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235 at p 251 per Lord Reid. I do not, therefore, find it profitable to discuss whether the effect of the ESI Order amounts to "double taxation" or "double assessment" (whether straightforward or not) or the rather less objectionable "double recovery". I would prefer to go straight to the real question: whether the scheme established by the ESI Order is so oppressive, objectionable or unfair that it could only be authorised by Parliament by express words or necessary implication.

    118. My Lords, as I said at the outset, Edison is not the victim of double taxation. It has been chargeable to one set of rates and one set only, namely local rates; and these were levied on Edison in an appropriate amount and for an appropriate period. It has never been subject to central rates, and was not charged to the central rates which are in issue in the present case. It undertook a contractual obligation to pay an apportioned part of PowerGen's liability to central rates for the 1999-2000 rating year, but this was a voluntary assumption of liability on its part as part of a larger commercial transaction. There is no reason to suppose that it paid more in total than it was willing to pay, or than PowerGen was content to receive, as the price of the power stations.

    119. If anyone was treated unfairly it was PowerGen. It was liable to central rates in respect of an element of value, namely the DNC of the two power stations, which it no longer possessed. Yet it does not complain. It has explained its consent to the ESI Order by saying that it accepted the Secretary of State's view that in the case of the central list the administrative burden in making changes to rateable values during the course of the rating year outweighed any potential disadvantage to the ratepayer in not doing so. For the ratepayer there were advantages as well as disadvantages in annual adjustment. Although plant taken out of commission or disposed of during the year was not reflected in a change in rateable value until the beginning of the following year, neither was the commissioning of new plant. "Swings and roundabouts" were inherent in the scheme; and it seems that there were more "swings" than "roundabouts", since PowerGen was able to work the system to its own advantage, bringing forward the commissioning of new plant to the beginning of the rating year and delaying the decommissioning of existing plant until nearer the end.

    120. Dyson LJ found any analogy between disposal and decommissioning of plant to be unconvincing. On a disposal, he observed, a power station ceases to be occupied by one ratepayer and is transferred into the occupation of another. In the case of decommissioning, the position is different. Ownership remains vested in the first ratepayer, and there is no double assessment to rates.

    121. This is true, of course; but I think that it makes the case for the Secretary of State, not against him. It shows that any potential unfairness to the ratepayer has nothing to do with double assessment. It arises on decommissioning, when the ratepayer ceases to enjoy the element of value by reference to which his liability is calculated. It does not arise on subsequent disposal when for the first time another ratepayer becomes liable to rates in respect of the same element of value. In itself this has no effect on the first ratepayer's liability.

    122. Both parties have placed reliance on the decision of the Court of Appeal in Milford Haven Conservancy Board v IRC [1976] 1 WLR 817. The case bears a strong resemblance to the present. It concerned the validity of a statutory instrument which prescribed a system of formula rating of the hereditaments of a statutory dock or harbour board. The terms of the enabling Act, which were very wide, included power to repeal or amend enactments relating to valuation. The relevant statutory instrument based the valuation on the board's receipts; but these were not limited to receipts of the hereditaments in question and this, the board said, was not a method of valuing the hereditaments at all. Moreover, the receipts in question included the rents from a cottage let to a tenant who was himself in rateable occupation. This was a straightforward case of double recovery.

    123. The board claimed that the statutory instrument was ultra vires. It said that it was contrary to fundamental principles of rating and, under the guise of prescribing a method of valuation, imposed a form of tax which Parliament cannot have intended.

    124. Bridge J dismissed the board's claim, and his judgment was unanimously upheld by the Court of Appeal. The Court held that the language of the enabling Act was sufficiently wide to entitle the Secretary of State to prescribe any method of valuation, however far it departed from established principles, and notwithstanding that it appeared to countenance double taxation. Scarman LJ was troubled by the question of double taxation. He said that it appeared wrong that rates should be paid twice, once by the tenant and once by the landlord. But this did not avail the board because the statutory instrument was concerned only with the method of valuation and not with the identity of the hereditament.

    125. My Lords, that is equally true in the present case. But whether that decision was right or wrong, I am with respect not impressed by the reasoning of the Court of Appeal. If the question of double taxation is to be approached as a matter of substance and not form, as I consider that it is, then the distinction is without a difference. What matters is the result, not the means by which it is achieved. I agree with Dyson LJ in the present case that there was an element of double recovery in that the Secretary of State received payments by reference to the same element of value during the same period from both PowerGen and Edison. But for the reasons I have given, I do not consider that this was unfair or unreasonable. It is not just a question of swings and roundabouts, though this goes a long way to alleviate any unfairness. It is rather that the element of double recovery arose as a result of the provision for annual adjustment, which was an appropriate and long established feature common to the various global or cumulo systems under which public utilities, including the electricity generating industry, were rated for many years before 1988. It cannot possibly be said that it was beyond the contemplation of Parliament that it would be retained for central non-domestic rating where the Secretary of State, after consultation with the relevant industry, might think it appropriate.

The European Convention on Human Rights.

    126. Both Carnwath J and the Court of Appeal considered that the principles of the European Convention on Human Rights do not add anything of value to the basis of Edison's challenge to the validity of the ESI Order. Subject to one point in its printed case which it has subsequently abandoned, Edison accepts that they were correct on this point.

Conclusion.

    127. Accordingly, in agreement with my noble and learned friends Lord Hoffmann and Lord Scott of Foscote, I would dismiss the appeal.

LORD SCOTT OF FOSCOTE

My Lords,

    128. I have had the advantage of reading in advance the opinions prepared by my noble and learned friends Lord Hoffmann and Lord Millett and gratefully adopt their exposition of the circumstances and statutory context in which the issue in this case has arisen.

    129. Statutory provisions made pursuant to the Local Government Finance Act 1988 (the 1988 Act) established a regime for the assessment, collection and payment of rates on most, but not all, non-domestic hereditaments that is relatively easy to comprehend. Liability was based on occupation of the hereditament in question. The occupier was liable to pay the rate for each day that he was in occupation. Each local authority was required to maintain a list of the non-domestic hereditaments in its area showing the rateable value of each hereditament. The valuations were to be carried out by local valuation officers. The lists were called "local non-domestic rating" lists.

    130. But the 1988 Act also contained provisions under which a different rating regime could be applied to some non-domestic hereditaments. Section 52 of the Act created a "central" non-domestic rating list. The Secretary of State was given power to designate the persons to be placed on the central list and the non-domestic hereditaments in respect of which they were to be centrally rated (see section 53(1) of the Act and the Central Ratings Lists Regulations 1994 SI 1994/3121). The purpose of this was "to [secure] the central rating en bloc of certain hereditaments" (emphasis added). The designation of the hereditaments to which central rating would apply did not have to specify them individually but could specify them as a class (see section 67(9) of the Act).

    131. The Secretary of State placed PowerGen on the central list and designated all its hereditaments "wholly or mainly used for the purpose of the generation of electrical power, or for ancillary purposes" as the non-domestic hereditaments in respect of which PowerGen would be centrally rated. Hereditaments of PowerGen falling within this class could not be and were not, therefore, included in any local non-domestic rating list.

    132. Paragraph 3 of the 6th Schedule to the 1988 Act gave express power to the Secretary of State by order to disapply the normal method of establishing the rateable value of a non-domestic hereditament (see para 2(1) of the 6th Schedule) and instead to provide that, in the case of non-domestic hereditaments on local lists,

    "[their] rateable value shall be such as is determined in accordance with prescribed rules." (sub-para 1(b))

and, in the case of non-domestic hereditaments on a central list,

    "[their] rateable value shall be such as is specified in the order or determined in accordance with prescribed rules." (sub-para 2(b)).

    133. By the Electricity Supply Industry (Rateable Values) Order 1994 (SI 1194/3282) the Secretary of State made "prescribed rules" in relation to hereditaments used for the purpose of generating electricity. Part II of the Order applied to hereditaments on local lists. The rateable value of each of these hereditaments was to be assessed by reference to its declared net capacity (DNC) in respect of electricity generation. Part III of the Order applied to hereditaments on the central list. Here, a rateable value was not attributed to each hereditament. Instead the designated hereditaments of each designated person, eg PowerGen, were to be given an en bloc rateable value based upon their en bloc DNC. My noble and learned friend Lord Millett has described in paragraph 34 of his opinion how the en bloc rateable value was calculated. It suffices for present purposes to say that the original en bloc valuation was varied on 1 April of each rating year by a complex formula that reflected any changes in PowerGen's DNC during the past year. PowerGen's rating liability for the next rating year was then calculated accordingly. If, for example, a new power station were acquired by PowerGen and began generating electricity, its capacity would be built into PowerGen's DNC at the beginning of the next rating year and would affect the amount of PowerGen's rating liability for that year. But for the remainder of the rating year in which the new power station had been acquired, PowerGen's rating liability would not be affected. Conversely, if PowerGen were to sell or decommission a power station the consequence of this would have no impact on PowerGen's rating liability for the remainder of the rating year in question. But the loss of capacity would be taken into the DNC calculation at the end of the rating year and thus affect the rating liability for the next year. In relation to ancillary premises, such as car parks, garages, facilities for employees etc, which fell within the designated class but did not themselves generate electricity, PowerGen's ownership, occupation, sale or purchase of them during a particular rating year would have no effect whatever on its rating liability for that year or thereafter.

    134. The rating scheme as applied to PowerGen and its central list designated hereditaments was fundamentally different from the ordinary scheme applied to ordinary non-domestic hereditaments, including those of electricity generating companies not on the central list. Under the latter scheme, rating liability was, and is, based on occupation. When occupation ceases, liability ceases. When occupation commences, liability commences. And the amount of the liability was dependent on the rateable value of each individual property of which the ratepayer was in occupation and in respect of which he was liable to pay rates. Under the former scheme, rating liability was not based on occupation of any particular property and the amount of the liability was based on the total rateable value of all the ratepayer's designated hereditaments calculated as at the beginning of the rating year. The payment of rates by PowerGen, calculated accordingly, would discharge its rates liability in respect of all its hereditaments falling within the designated class during the rating year in question, regardless of its occupation of them during that year.

    135. It is the contrast between the two schemes that has produced the complaint by the appellant, Edison, in the present case. Edison completed its purchase from PowerGen of the two power stations on 19 July 1999. It was entered in the local non-domestic rating list as liable for rates in respect of those hereditaments as from 19 July 1999. Edison does not challenge this liability. As from the same date, 19 July 1999, the power stations ceased to fall within the class of designated properties in respect of which PowerGen was liable to be centrally rated. But PowerGen's rating liability for the year 1999/2000 had been fixed as at 1 April 1999. PowerGen's ownership of the two power stations and their contribution to PowerGen's total DNC had, of course, contributed to the amount of that liability. The rating consequences of the contribution continued for the rest of the rating year notwithstanding that during the year PowerGen had divested itself of the two power stations.

    136. The continuing and unreduced rating liability of PowerGen after its sale of the power stations to Edison might be thought an insecure basis for a complaint by Edison. Edison's complaint is, however, attributable to PowerGen's success in obtaining, as a term of the contract of sale between itself and Edison, a provision under which Edison agreed to pay an apportionment of the rates payable by PowerGen in relation to the power stations in the rating year 1999/2000. The amount of PowerGen's rating liability for the year 1999/2000 attributable to the two power stations was a sum in excess of £13.5 million. Edison has accepted its contractual liability to pay PowerGen this sum and has duly paid it. Edison protests, however, that in relation to the two power stations the central rating scheme produced by the Secretary of State in purported reliance on his statutory power under the 1988 Act has led to double recovery, from PowerGen on the one hand and from Edison on the other, in respect of the same properties (the power stations) and in respect of the same period (19 July 1999 to 31 March 2000). Edison contends that the statutory power under which the Secretary of State purported to act ought not to be construed as permitting such a result. There is, it is contended, a presumption that Parliament does not intend double taxation or, in the context of rates, double recovery in respect of the same property or properties. General words in a statute, such as those in paragraph 3 of the 6th Schedule to the 1988 Act, are not, it is submitted, sufficient to displace this presumption. And if the central rating scheme is ultra vires, as contended, then PowerGen were not liable to pay the £13.5 million; Edison were not liable to pay that sum to PowerGen and are entitled to repayment. So the argument goes.

 
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