In a judgment handed down today, 7 March 2019, the Court of Appeal unanimously dismissed claims by local authorities that they were eligible to recover arrears of business rates from the owners of largely empty commercial premises who had utilised various business rates mitigation processes.
The case of Wigan Council v Property Alliance Group Limited ("PAG") saw a team from Addleshaw Goddard, led by partner Chris Perrin, and including Nicholas Trompeter from Selborne Chambers, successfully bring a strike out application on behalf of PAG, a market leading developer.
Chris Perrin, partner at Addleshaw Goddard, commenting on the decision, said: "Empty rate liabilities have been a real issue for owners of vacant premises and puts considerable financial pressure on them. Despite having no income from the property, they are responsible for holding costs which include business rates, insurance and security. Property owners who are faced with paying business rates on empty commercial premises are less likely to invest and spend money on redevelopment. This naturally has a knock on effect on investment generally and the demise of the high street and retail sector.
The judgment today confirms that property owners are free to mitigate rates provided they follow a lawful process. This judgment will be welcomed as relieving one challenge faced by property owners with vacant property."
A spokesperson for PAG said: “We are very pleased that the Court of Appeal has agreed that the proceedings issued against both PAG and a large number of other commercial landlords were misconceived and should be struck out. The issue of charging empty property business rates at a rate of 100% is a concern for the property sector as a whole and has proven to be counter-productive in terms of enabling landlords to invest in their properties. The scheme considered by the Court of Appeal is just one of a number of schemes used by landlords to mitigate rates liabilities, thus freeing up investment capital, and the decision provides useful guidance to the sector as a whole as to the circumstances in which it is lawful to do so.”
Following the enactment of the Rating (Empty Properties) Act 2007, since 1 April 2008, owners of empty commercial premises have been liable to pay full business rates following the expiry of the initial 3 month (for offices) or 6 month (for industrial premises) relief. This change in legislation prompted a raft of attempts to mitigate business rates via different methods.
In 2017 Wigan Council and a number of other local authorities issued 55 separate claims seeking to recover approximately £10m in alleged arrears of business rates. The defendant property owners sought to strike out the cases without a trial on the basis that they disclosed no reasonable grounds for bringing the claims. Two cases, both advised on by Addleshaw Goddard, were chosen as test cases with the rest being stayed pending the outcome.
In the case of Wigan Council v Property Alliance Group Limited the local authority sought to reclaim the outstanding business rates from PAG.
Wigan Council sought to argue that the lease and/or process was (a) a sham; (b) an abuse of corporate personality allowing the Court to "pierce the corporate veil" following the well-known Supreme Court decision of Prest v Petrodel Resources Ltd  2 AC 415 ("Prest"); and/or (c) an abuse of the legislation allowing the Court to disregard the process in accordance with the principle of statutory construction in W.T. Ramsay Ltd v IRC  AC 300 ("Ramsay").
First Instance Decision
At first instance ( EWHC 3461 (Ch)) His Honour Judge Hodge QC struck out both the sham and Ramsay arguments. With regard to sham HHJ Hodge QC found "no arguable basis for saying that these were not genuine leases" and with regard to Ramsay he found "no arguable application on the facts". However, HHJ Hodge QC refused to strike out the Prest argument stating that "on a proper application, or a principled development of the Prest case, there is an arguable case".
HHJ Hodge QC gave permission to PAG to appeal the Prest argument and refused the local authority permission to appeal on the sham and Ramsay arguments. On application to the Court of Appeal Patten LJ granted the local authority permission to appeal the Ramsay argument only.
The Court of Appeal
Over two days in November 2018 the Court of Appeal heard arguments on Prest and Ramsay and have today found unanimously in favour of PAG.
In delivering his judgment that Prest was not applicable Lord Justice David Richards held that:
"The use of companies to avoid the incidence of tax or rates can hardly be described as rare or novel. They are frequently inserted in tax avoidance schemes for no reason other than to mitigate or avoid the incidence of one form or another of taxation";
"If the members of the Supreme Court…had thought that the establishment or use of companies for the purposes of tax avoidance, or rates avoidance, was an appropriate ground for the application of the doctrine, I find it hard to imagine that they would not have said so"; and
"Nor can it be said that the SPVs were used in the present cases as engines of fraud or take an unconscionable advantage".
With regard to Ramsay, Lord Justice Henderson held that:
"…as is the case with most honest tax avoidance schemes, the intention of the parties was to enter into transactions which are valid and have their purported effect".
In the course of giving judgment the Court of Appeal noted the comment of Mr Justice Norris in a previous case involving the scheme that avoidance schemes are "essentially a far-reaching economic and political question that is properly the province of Parliament" and not the Court.
Lord Justice Baker agreed with both judgments.
As a result of the judgments, the claim, together with all of the stayed claims, stand struck out and the local authorities claim for the recovery of business rates failed.