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(emphasis added) Services are defined as meaning - heating, cooling, ventilating, lighting, draining or supplying of water and protection from trespass, criminal damage, theft, fire or other hazard. STA |
The plant and machinery specified in Table 2 includes (under the heading Heating, Cooling and Ventilating) ten items of equipment (such as water heaters, and refrigerating machines) and associated accessories. STA |
It is not in issue that the disputed air handling system is covered by the Table, nor that it is used in connection with services to the hereditament within the meaning of Class 2. STA |
The only issue is whether it is excluded by the italicised words quoted above. STA |
For simplicity in this judgment (following earlier usage - see below), I shall refer to those words as the Class 2 proviso or the proviso. STA |
References in the judgment to the word plant should be read (where appropriate) as including reference also to machinery. STA |
Legislative history Ratio |
In this court, as in the Court of Appeal, both parties sought to draw assistance from the background history of these provisions, dating back to the latter part of the 19th century, and including reports by a number of expert committees. Ratio |
The history is of some value in explaining the genesis of Class 2, and more particularly the background of the law and practice as understood at the time that the Wood Committee made its recommendations. Ratio |
The main problem has been to draw a defensible line between, on the one hand, plant properly treated as part of the hereditament for the purpose of assessing its hypothetical letting value, and plant more fairly attributable to the tenants business within it (the tools of the trade), having regard also to the need to k... |
The search for a coherent legislative solution can be traced back to the much-criticised decision of the House of Lords in Kirby v Hunslet Union Assessment Committee [1906] AC 43. Ratio |
The House there disapproved a distinction based on whether the plant was a fixture, in the traditional land law sense, but failed (so it was said) to put in place a workable alternative. Ratio |
The resulting uncertainty led in due course to the establishment of an inter- departmental committee (the Shortt Committee), to inquire into the law and practice regarding the rating of plant in both England and Scotland. Ratio |
The committee reported in February 1925: Report of the Inter-Departmental Committee on the Rating of Machinery and Plant in England and Wales (Cmd 2340). Ratio |
Its recommendations led in turn to the enactment of the Rating and Valuation Act 1925. Ratio |
Section 24 of that Act, taken with the Third Schedule, can be seen as setting the pattern, albeit in simpler form, for subsequent enactments including the 2000 Regulations. Ratio |
It established the general principle that value of plant on the hereditament was to be left out of account for rating purposes, save for the classes specified in the Schedule, which were deemed to be a part of the hereditament. Ratio |
There is a helpful description of the general effect of the Third Schedule in the judgment of Lord Hewart CJ in Townley Mill Co (1919) Ltd v Oldham Assessment Committee [1936] 1 KB 585 (DC), although the facts (relating to plant in a disused mill) are too different from the present to make it of any direct assistance. ... |
In particular he drew a distinction (as had the Shortt Committee, para 15) between motive and process plant, only the former being taken into account for rating purposes. Ratio |
He said: When one turns to the Third Schedule of the Act, it is apparent that it enumerates that type of machinery and plant which is conveniently described in the case as motive machinery; it is the machinery without which the mill could not begin to work, as, for example, the generation of power, heating and cooling,... |
When the machinery and plant referred to in the Third Schedule are eliminated, what is left is the kind of machinery which is concisely described in this case as process plant and machinery, operative plant and machinery, working and manufacturing plant and machinery. Ratio |
By section 24(1)(b), no account is to be taken of the value of any plant or machinery of that kind (p 598) He noted that under the previous law the value of plant in a mill, though not rated as such, was taken into account as enhancing the value of the hereditament to be rated (p 599). Ratio |
The effect of the Act, intended as beneficial to those interested in the carrying on of industry, was to get rid of all the doctrine of enhanced value, and to lay it down that process plant must henceforth be disregarded when ascertaining the rateable value of the hereditament (pp 602-603). Ratio |
The decision was upheld by the House of Lords, where can be found statements to similar effect (see [1937] AC 419, pp 428-429 per Lord Russell of Killowen). Ratio |
Turning to the detail of the Third Schedule, Class 1(b) can be seen as the precursor of Class 2 of the current regulations. Ratio |
It covered plant used - mainly or exclusively in connection with - (a) (b) the heating, cooling, ventilating, lighting, draining, or supplying of water to the land or buildings of which the hereditament consists, or the protecting of the hereditament from fire: Provided that, in the case of machinery or plant which is ... |
(emphasis added) The other classes were (in very broad terms) similar in scope to what became the classes in the 2000 Regulations (see para 9 above). Ratio |
The italicised words in the proviso to Class 1 seem to have been the first appearance in this context of the expression manufacturing operations or trade processes. Ratio |
The circumstances in which the proviso came to be included are of some historical curiosity, since it was proposed by Mr Neville Chamberlain MP, as the responsible Minister (Hansard Standing Committee A, 4 August 1925, col 1093). Ratio |
He explained the purpose as being to exclude such processes as really belong to the precise work which is being carried on in the shops rather than the general heating or ventilating of the plant. Ratio |
He gave an example: where, for instance, a man is polishing at a buff, and there is a fan drawing off the dust so that it shall not go down his throat, that is to be treated as part of the machinery, and not as part of the heating or ventilating plant which is run. Ratio |
It is unnecessary to decide whether those observations are admissible under the principle in Pepper v Hart [1993] AC 593 (see Bennion op cit para 24.11). Ratio |
The general purpose is clear enough from the wording of the proviso itself, and the example is so far from the present facts as to be of no practical assistance in this appeal. Ratio |
Returning to the 1925 Act itself, section 24(3)-(6) enacted a procedure to provide more precise information about the contents of the specified classes. Ratio |
A special committee was to be established to prepare a statement setting out in detail all the machinery and plant [appearing] to fall within any of the classes specified in the Schedule. Ratio |
The statement (modified if necessary following consultation) was to be embodied in a Ministerial order having effect as though substituted for the Third Schedule. Ratio |
Provision was also made for its subsequent revision at intervals as directed by the Minister. Ratio |
The first such order was made in 1927 (The Plant and Machinery (Valuation for Rating) Order 1927 (SR & O 1927/480)). Ratio |
No further change was made until the setting up of the Ritson Committee, which reported in 1959: Report of the Committee on the Rating of Plant and Machinery. Ratio |
Its report included a revised statement under section 24(4), leading to the Plant and Machinery (Rating) Order 1960 (SI 1960/122). Ratio |
Between 1987 and 1990, section 24 was replaced in similar terms by section 21 of the General Rate Act 1967, which preserved the 1960 regulations (section 117(3)). Ratio |
The first regulations made under the 1988 Act (The Valuation for Rating (Plant and Machinery) Regulations 1989 (SI 1989/441)) were in similar form. Ratio |
There was no material change to the substance of Class 1(b) (or 1B as it became) over this period. Ratio |
Meanwhile, as explained by the Wood Report (chapter 4), the law in Scotland had developed separately. Ratio |
The general rule was established by section 42 of the Lands Valuation Act (Scotland) Act 1854 (17 & 18 Vict, c 91), which included within the definition of lands and heritages subject to rates all machinery fixed or attached to any lands or heritages. Ratio |
The perceived burden was partially relieved by the Lands Valuation (Scotland) Amendment Act 1902 section 1, which added a proviso to section 42, limited to any building occupied for any trade, business or manufacturing process. Ratio |
More recently, in response in part to unfavourable comparisons with the position in England, the Local Government and Planning (Scotland) Act 1982 section 4 gave the Secretary of State power to amend the proviso to section 42. Ratio |
That was done by the Valuation (Plant and Machinery) (Scotland) Order 1983 (SI 1983/120). Ratio |
It included (inter alia) an exception for certain categories of plant used in an industrial or trade process, if located wholly or mainly outwith any building (regulation 3(2)). Ratio |
The Wood Report Ratio |
As already noted, the 2000 Regulations were designed to reflect the recommendations of the Wood Report. Ratio |
The committee included representatives of the professions, and the private sector, and of the Valuation Offices of the three jurisdictions The report itself contains a valuable survey of the development of the law, in the different parts of the United Kingdom, and discussion of its difficulties and inconsistencies. Rat... |
Chapter 8, headed The new scheme - competing principles, outlined the committees general approach. Ratio |
In particular they accepted the validity up to a point of a tools of the trade exemption, but considered that it must be subject to qualification in the interests of fairness as between ratepayers (paras 8.6-7). Ratio |
They commented on the problems of dealing with plant used to provide services to a building but also having a trade purpose. Ratio |
Since this passage is relied on by Mr Morshead QC for the respondent, it is right to quote it in full: 8.8 What we have said so far relates to plant and machinery which is used for the purpose of a trade or industrial process. Ratio |
There is also the problem of plant and machinery which is introduced for the purpose of providing services for the premises, or which forms part of its infrastructure. Ratio |
This type of equipment has never given rise to any difficulty as a matter of principle. Ratio |
In the letting market landlords typically provide the services and infrastructure, and it has been taken for granted that such items should always be deemed to form part of the hereditament, even in the case of property which is not normally found in that market. Ratio |
8.9 The difficulty arises in the practical application of the principle, again as our predecessors have found, because it is extremely unusual, in the case of large-scale industrial property, to find plant and machinery which is installed exclusively for the purpose of providing general services, such as light, heat an... |
In the existing regulations in each of the countries of the United Kingdom it has therefore proved necessary to draw some fairly arbitrary line in order to indicate the point up to which such plant and equipment can fairly be rated, by analogy with commercial hereditaments generally, and beyond which rateability should... |
We have looked at the boundaries which have been drawn in the past, and have re- drawn them in order to simplify the task of valuers, assessors and agents and to reflect some of the technical changes which have taken place in industry since they were last reviewed. Ratio |
The committee concluded, at para 8.10, that the underlying conceptual approach of the existing regulations in each part of the UK was soundly based. Ratio |
They then summarised the principles on which future regulations should be based: Rateability should continue, in our opinion, to be determined in accordance with the following rules: (1) that the land and everything which forms part of it and is attached to it should be assessed; (2) that process plant and machinery wh... |
In chapter 9, the committee commented specifically on Class 1B of the English regulations (paras 9.11-12). Ratio |
They noted the distinction between plant and machinery which services property, and that provided for use in connection with the trade process being undertaken, adding: But many services in non-domestic property, which might be found whatever the use of the property, are also used incidentally for manufacturing operati... |
The definition in Class 1B was not free from ambiguity and had given rise to disputes as to when plant should be treated as falling within it. Ratio |
As an example of the problem, they referred to the treatment of an air-conditioning plant, which may have been installed to facilitate a particular process - for instance computer suites or clean rooms, or to enhance the working conditions of employees, but it was impossible to distinguish between the two purposes. Rat... |
They concluded: 9.14 We have considered whether the current definition should be amended or dropped altogether. Ratio |
For example, we discussed whether it might be preferable to exclude from rateability only that service plant which solely supports a process function. Ratio |
However to treat plant as process plant only if it was wholly for process purposes would increase the rateability of this type of plant and machinery. Ratio |
Such plant is rarely met in practice. Ratio |
As an alternative, we considered whether it would be possible to apportion the value of the plant between Classes 1B and 4 reflecting the relative use for service and process activity. Ratio |
But this would run contrary to our desire for cost-effectiveness of valuation effort and could create new opportunities for dispute. Ratio |
9.15 We therefore conclude that notwithstanding the difficulties which have been encountered in deciding the degree to which plant is used for process purposes the law as we understand it in both England and Scotland should remain unaltered but that the draftsmanship should be improved to eliminate the difficulties inh... |
Although the committee did not include their own draft, these paragraphs can be taken as a useful indication of the thinking behind the Class 2 proviso in its current form. Ratio |
Annex L to the report contained a Summary of worked examples with Wood Committee recommendations. Ratio |
This listed some typical items of plant and machinery, for different categories of Industry, with an indication of their rateability respectively in England (including Wales, and Northern Ireland), Scotland, and under the Wood recommendations. Ratio |
One category, headed Industry - (e) Retail distribution, included the example of refrigeration plant, and gave the answers as no, yes, no; so indicating that, at least in the perception of the Committee, such refrigeration plant was currently exempted from rateability and should continue to be so under their recommenda... |
It is also of interest that the Committee received written evidence from the Cold Storage and Distribution Federation, and the National Association of Warehousekeepers, and paid a visit to the Safeway Main Distribution Centre. Ratio |
Finally, in anticipation of a submission of Mr Morshead, I should note one feature of the Scottish system on which the Wood Committee commented unfavourably. Ratio |
This was the distinction drawn by the 1902 Act between, on the one hand, premises occupied for any trade, business or manufacturing process, and other types of premises, for example, institutional premises such as hospitals, schools, colleges and universities . Ratio |
They recommended against the perpetuation of this distinction in the harmonised system (paras 5.2(1), 8.21, 13.19). Ratio |
The decisions below and the submissions in the appeal Ratio |
The decisions RLC |
The Upper Tribunal (paras 64-66) found difficulty in finding a satisfactory line to distinguish between uses which amount to trade processes and those which do not. Ratio |
They thought that the conjunction of the expression with manufacturing operations, and the fact that it was an exception to a general rule, pointed to a less expansive approach to the scope of trade processes. Ratio |
They saw force in Mr Morsheads submission that - the common defining characteristic of manufacturing operations and trade processes is activity bringing about a transition from one state or condition to another, including by the creation, completion, repair or improvement of the subject matter of that activity. Ratio |
They did not think that the display or storage of goods in itself, nor the creation of an environment conducive to the display or storage of goods, could properly be regarded as involving a trade process. Ratio |
The requirement of a particular retailer for more substantial or powerful equipment than is normally found in retail premises did not create a relevant distinction. Ratio |
They added: 66. Ratio |
All retail warehouses require heating, cooling and ventilation to a greater or lesser extent. Ratio |
We do not consider that the plant and machinery installed to provide those services can properly be regarded as being used or intended to be used as part of manufacturing operations or trade processes. Ratio |
We appreciate that the scale of Icelands particular air handling system is dictated by the presence in its store of substantial numbers of integral cabinets, each of which creates heat, and which collectively are essential to Icelands preferred style of trading. Ratio |
A serious malfunction of the air handling system would therefore put its stock at risk. Ratio |
That feature distinguishes Icelands air handling needs from those of other retailers, but we do not regard that difference as critical. Ratio |
Although the particular needs of Iceland create a greater need for those services than the norm, we do not agree that they make its air handling system an exception to the general rule that such plant and machinery is to be assumed to be part of the hereditament and therefore to be rateable. Ratio |
The tribunal went on to consider whether, assuming the air handling system was used as part of a trade process, it was mainly so used. Ratio |
They would have answered this question in favour of Iceland. Ratio |
They accepted Icelands evidence that the main technical and operational reason for Icelands selection of this air handling system is its suitability for the maintenance of an environment in which integral cabinets can operate successfully (para 78). Ratio |
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