England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ADMIN COURT
MR JUSTICE COLLINS
[2007] EWHC 3190 (Admin)

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/09/2008

Lord Justice Rix :

1. Can the owner of a house next to a motorway apply for a reduction of council tax because traffic on the motorway, with attendant noise and pollution, has increased over the years so much that it has possibly reduced the value of his house to a lower tax band? That is essentially the issue raised by this appeal. In the semantic terms of the relevant statute the issue is whether the change in the volume of traffic (noise and pollution) is a "change in the physical state of the dwelling's locality" (see section 24(10) of the Local Government Finance Act 1992).

The facts

2. Four householders, Messrs Hunt, Bradley, Gibson and Crompton, live in bungalows on Winslow Road, Bolton, a street that runs parallel to the northern carriageway of the M61 motorway near to its junction 5. The motorway runs at an elevated level higher than the bungalows. The householders' evidence spoke of enhanced noise and pollution levels; of a sound barrier which had been promised but had not materialised because the department of transport had underestimated the costs; of resurfacing of the motorway to make it lighter on tyres and less noisy, but not on stretches close to the bungalows; of the inability to open windows because of noise and dust and of other difficulties of living close to the motorway. They were all of the opinion that there was increased traffic, noise and pollution levels and had requested that the valuation band of their properties for council tax purposes should be reduced. They said that properties for sale in their locality had only achieved sales after prices had been considerably reduced, by up to £60,000.
3. On behalf of the council tax listing officer, Mr Chilton-Merryweather, it was accepted that traffic had increased, but it was said that this was only an environmental change and not such a "physical change" as would justify a reduction of the houses' council tax under the legislation by reason of a "material reduction" in their value. It was common ground that there had been no alteration to the motorway itself, such as the addition of an extra lane. He had sympathy for the householders but had been required to reject their proposals, on the grounds that they were not validly made.
4. The householders had appealed from the listing officer's rejection of their claims to the Manchester North Valuation Tribunal which on 8 June 2006 had sat to hear their appeal. The tribunal's decision was in favour of the householders. The increase in traffic volume was accepted to be a physical increase. The noise pollution was measurable. The tribunal believed that the increased noise and pollution levels had caused a change in the physical state of the dwellings' locality and that that had impacted on the value of the dwellings. Therefore, the appeals would be relisted for the tribunal to consider and determine the issue of valuation and whether the bungalows' reduction of value was such as to require a change in their council tax banding. They warned the householders, however, that

"according to regulations, the value of a dwelling for Council Tax purposes is the amount a property would have sold for in the housing market of April 1991, taking account of the physical situation of the property and its locality as at the date of the proposal (March/April 2006)."

The appeal to the Administrative Court

5. The Council Tax (Alteration of Lists and Appeals) Regulations 1993, by its regulation 32, grants a further appeal to the high court, but only on a point of law. The listing officer's appeal came before Collins J, and this further appeal arises out of his judgment in favour of the householders, upholding the tribunal's decision. He said:

"I put in the course of argument…the situation dealing with roads where a local traffic management scheme resulted in traffic having to use what had hitherto been a relatively quiet route. The new traffic scheme resulted in a substantial increase in traffic and that had a damaging effect upon the values of the houses of those who lived in the particular road. Their locality, as a result of that new traffic management scheme, was changed for the worse. It seems to me that was entirely capable of falling within the expression "change in the physical locality of the dwelling" [sic, in fact "change in the physical state of the dwelling's locality"]. One must not forget that the purpose behind these provisions is to try to produce a fair valuation for the purposes of the payment of council tax. And if there has been a change which clearly affects the value of the property, it would seem consistent with the purpose behind the legislation that it should be possible to reduce in fairness to the individual taxpayer. He should not have to pay more than the amount based upon the present value of his dwelling. Of course, there have to be hurdles, there has to be a degree of limitation, and there are always likely to be some hard cases and some situations where it is not possible to take advantage of the provisions allowing for valuation. But I see no good reason to give a narrow construction to the relevant provisions unless it is clearly right that that should be done, particularly when to give such a narrow construction seems to me not to accord with the obvious purpose of the legislation."

The statutory scheme

6. To understand the issues of statutory interpretation and policy debated on this appeal, it is necessary to set out something about the council tax scheme introduced by the Local Government Finance Act 1992 (the "1992 Act") and its historical background.
7. The council tax replaced the ill-fated community charge or "poll tax" introduced by the predecessor Local Government Finance Act 1988 (the "1988 Act"). The 1988 Act had dealt with both non-domestic and domestic property: non-domestic property by means of a rating scheme based on units of rateable property, known as hereditaments, whose rateable value was made the basis of the ratepayer's liability to rates; and domestic property by means of the community charge, which was levied on a head-count, and not on the value of the dwelling in which the taxpayer resided.
8. Prior to the 1988 Act, rates were payable on both non-domestic and domestic property under the General Rate Act 1967 (the "1967 Act"). The basic scheme of rateable values under the 1967 Act was common to both non-domestic and domestic property. With the failure of the community charge, the 1992 Act which introduced the council tax for the purpose of the taxation of domestic property returned to the basic scheme of valuing individual properties by a common yardstick, in this case their capital value. Council tax in England is paid according to which of eight valuation bands, fixed by the statute, an individual dwelling falls into. Thus, in essence, council tax is payable by the resident of a chargeable dwelling on an annual basis and the amount of tax is based on the valuation band against which the dwelling is entered on the valuation list. That value and thus the appropriate valuation band are determined by listing officers in accordance with valuation principles prescribed by the 1992 Act and its regulations.
9. For the purpose of council tax, the valuation had to be done by reference to two dates, 1 April 1991 and 1 April 1993 (the "1991 date" and the "1993 date" respectively). The yardstick for valuation was fixed according to the open market price at which the dwelling might reasonably have been expected to have sold at the 1991 date, but the size, layout and character of the dwelling and the physical state of its locality, on the basis of which the 1991 date valuation had to be fixed, was to be taken as at the date of its actual valuation, which (broadly speaking) was in the run-up to and conventionally as at the 1993 date. In terms of the statutory language, the 1991 date valuation had to be made on the assumption that dwelling and locality were as they were at the date of actual valuation. Certain other assumptions also applied, such as that the dwelling was in a reasonable state of repair. The valuation list was then compiled on 1 April 1993 and came into effect on that day. The general effect of these provisions is that inspection and valuation are all done, within a tight time regime, in relation to the physical configuration of the dwelling and the physical state of the locality, but by reference to certain conventional yardsticks, such as a common assumption that the dwelling is in a reasonable state of repair, and, importantly, a common "bible" of market values as of a single day, 1 April 1991.
10. The statutory regime also contemplated possible challenges to and alterations of the listed valuations. A challenge by an existing taxpayer essentially on the basis that a dwelling had been wrongly valued and banded could only be made during a period of approximately 8 months ending on 30 November 1993. If a new taxpayer buys a dwelling, he or she is entitled to challenge the valuation, but only within a period of six months of becoming the taxpayer in respect of the dwelling in question. Subject to such limited opportunities, the right to challenge (in the statutory language, "make a proposal for the alteration of") the listed valuation on the basis of a change of circumstances was also prescribed. Basically, and for present purposes it suffices to say, no alteration is permitted unless there has been a "material increase" or "material reduction" in the value of the dwelling sufficient to carry that value (again assessed as at the 1991 date) into a different band. "Material reduction" is a term of art defined as a reduction caused by a small number of prescribed causes which include "any change in the physical state of the dwelling's locality". Hence, in the present appeal we are concerned with a proposal made by the owners of the four bungalows based on the concept of a "material reduction", namely that the increase of traffic (noise and pollution) constitutes a change in the physical state of the dwelling's locality; and with the listing officer's opposition based on the argument that an increase of traffic with its attendant noise and pollution on a motorway which has not itself changed cannot be such a "material reduction" as the statute allows.
11. The relevant statutory provisions are spread, somewhat confusingly, over the 1992 Act itself and two sets of regulations, the Council Tax (Situation and Valuation of Dwellings) Regulations 1992 (the "1992 Valuation Regulations") and the Council Tax (Alteration of Lists and Appeals) Regulations 1993 (the "1993 Alteration Regulations"), as follows. I have put into italics the provisions of particular importance for the arguments on this appeal.

The Local Government Finance Act 1992:

"1(1) As regards the financial year beginning in 1993 and subsequent financial years, each billing authority shall, in accordance with this Part, levy and collect a tax, to be called council tax, which shall be payable in respect of dwellings situated in its area…

5(1) The amounts of council tax payable in respect of dwellings situated in the same billing authority's area (or the same part of such an area) and listed in different valuation bands shall be in the proportion –

6: 7: 8: 9: 11: 13: 15: 18

where 6 is for dwellings listed in valuation band A, 7 is for dwellings listed in valuation band B, and so on…

(2) The valuation bands for dwellings in England are set out in the following Table –

Range of values Valuation band

Values not exceeding £40,000 A…

Values exceeding £320,000 H…

21(1) The Commissioners of Inland Revenue shall –

(a) carry out such valuations of dwellings in England and Wales;

(b) furnish listing officers with such information obtained in carrying out the valuations…and

(c) disclose to such officers such contents of particulars delivered documents

as they consider necessary or expedient for the purposes of facilitating the compilation and maintenance by those officers of valuation lists in accordance with this Chapter.

(2) The valuations shall be carried out by reference to [the appropriate date] and on such assumptions and in accordance with such principles as may be prescribed.

(2A) For the purposes of subsection (2) above, the appropriate date is –

(a) in relation to a list under section 22, 1^st April 1991…

22. (1) In accordance with this Chapter, the listing officer for a billing authority shall compile, and then maintain, a list for the authority (to be called its valuation list).

(2) The list must be compiled on 1 April 1993[, shall come into force on that day and shall remain in force until a new list for the authority is compiled under section 22B below].

(3) Before the list is compiled the listing officer must take such steps as are reasonably practicable in the time available to ensure that it is accurately compiled on 1 April 1993.

(4) Any valuation of a dwelling carried out by the listing officer in pursuance of subsection (3) above shall be carried out in accordance with section 21(2) above."

12. Section 22B (inserted only as from 18 November 2003, pursuant to section 77 of the Local Government Act 2003, but not yet in force) provides for the compilation of new lists on 1 April 2007: but that has not happened. One of the difficulties of the council tax regime is that it has not provided for regular revaluations.
13. Section 24 deals with alteration of lists and is the source of the present dispute. It provides as relevant –

"(1) The Secretary of State may make regulations about the alteration by listing officers of valuation lists which have been compiled under this Chapter; and subsections (2) to (10) below shall apply for the purposes of this subsection…

(4) The regulations may include provision that no alteration shall be made of a valuation band shown in the list as applicable to any dwelling unless –

(a) since the valuation band was first shown in the list as applicable to the dwelling –

(i) there has been a material increase in the value of the dwelling and a relevant transaction has been carried out in relation to the whole or any part of it;

(ii) there has been a material reduction in the value of the dwelling…

(10) In this section –

…

'material increase', in relation to the value of a dwelling, means any increase which is caused (in whole or in part) by any building, engineering or other operation carried out in relation to the dwelling, whether or not constituting development for which planning permission is required;

'material reduction', in relation to the value of a dwelling, means any reduction which is caused (in whole or in part) by the demolition of any part of the dwelling, any change in the physical state of the dwelling's locality or any adaptation of the dwelling to make it suitable for use by a physically disabled person;

'relevant transaction' means a transfer on sale of the fee simple, a grant of a lease of seven years or more or a transfer on sale of such a lease."

14. Because the purpose of a valuation is to place each dwelling within its appropriate band (see section 23(2)), it follows that a material increase or reduction is one not merely caused by a prescribed and limited variety of factors (which is the purpose of the definitions in question) but also one ultimately giving rise to a valuation within a different band (see section 24(4): "no alteration shall be made of a valuation band shown in the list as applicable to any dwelling unless…"). So, a prospective alteration premised on a material increase or reduction may fail, when it comes to valuation, to effect an alteration in a valuation band and thus to effect an alteration in the valuation list.
15. Section 21(2) and section 22(4) contemplate the making of regulations to prescribe how valuations should be carried out. Those regulations are to be found in the 1992 Valuation Regulations. These provide as far as relevant as follows –

Council Tax (Situation and Valuation of Dwellings) Regulations 1992:

"6. Subject to regulation 7, for the purposes of valuations under section 21 (valuations for the purposes of lists) of the Act, the value of any dwellings shall be taken to be the amount which, on the assumptions mentioned in paragraphs (2) and (3) below, the dwelling might reasonably have been expected to realise if it had been sold in the open market by a willing vendor on 1 April 1991.

(2) The assumptions are –

(a) that the sale was with vacant possession;

(b) that the interest sold was the freehold or, in the case of a flat, a lease for 99 years at a nominal rent;

(c) that the dwelling was sold free from any rent charge or other encumbrance;

(d) except in a case to which [paragraph (3) or (3A) applies], that the size, layout and character of the dwelling, and the physical state of its locality, were the same as at the relevant date;

(e) that the dwelling was in a state of reasonable repair;

(f) in the case of a dwelling the owner or occupier of which is entitled to use common parts, that those parts were in a like state of repair and the purchaser would be liable to contribute towards the cost of keeping them in such a state;

(g) in the case of a dwelling which contains fixtures to which this sub-paragraph applies, that the fixtures were not included in the dwelling;

(h) that the use of the dwelling would be permanently restricted to use as a private dwelling; and

(i) that the dwelling had no development value other than value attributable to permitted development.

(3) In the case of a valuation carried out for the purposes of an alteration of the valuation list resulting from a material reduction in the value of the dwelling, it shall be assumed that –

(a) the physical state of the locality of the dwelling was the same as on the date from which the alteration of the list would have effect; and

(b) the size, layout and character of the dwelling were the same –

(i) in the case of an alteration resulting from a change to the physical condition of the dwelling, as on the date from which the alteration of the list would have effect;…

(v) in any other case, as on 1 April 1993.

[(5A) In paragraph (2), 'relevant date' means –

…

(e) in any other case, the day on which the valuation is made…]"

16. Thus, the original valuation made for the purpose of the valuation list must be made on the prescribed assumptions as to the physical condition of the dwelling (see the gloss of "size, layout and character" of a dwelling as its "physical condition" in regulation 6(3)(b)(i)) and the physical state of its locality as at the "relevant date" (regulation 6(2)(e)) which is later defined as "the day on which the valuation is made" (regulation 6(5A)(e)); and a subsequent valuation made for the purpose of an alteration resulting from a material reduction must be made on the basis that the physical state of the locality was the same as on the date from which the alteration would take effect. That latter date only comes to be defined in the 2003 Alteration Regulations, where regulation 14(4) (see below) provides that such an alteration takes effect "from the day on which the circumstances which caused that reduction arose".
17. It is opportune to note here that a substantial argument in favour of the four taxpayer respondents is predicated on regulation 6(2) and (3): whereby it is submitted that since the "physical state of its locality" must be taken to be as it was on either the original valuation date or on the date on which the change which caused the material reduction arose, therefore the valuer must be expected to value the dwelling in the light of what he observes about the physical state of its locality, and that must include the extent of its traffic and that traffic's environmental consequences.
18. Despite these important provisions in the 1992 Valuation Regulations, much of the detail concerning alteration of lists is contained in the 2003 Alteration Regulations, which provide in material part as follows:

Council Tax (Alteration of Lists and Appeals) Regulations 1993:

4. Restrictions on alteration of valuation bands

(1) No alteration shall be made of a valuation band shown in a list as applicable to any dwelling unless –

(a) since the valuation band was first shown in the list as applicable to the dwelling –

(i) there has been a material increase in the value of the dwelling and a relevant transaction has been subsequently carried out in relation to the whole or any part of it; or

(ii) subject to paragraph (2), there has been a material reduction in the value of the dwelling…

5. Circumstances and periods in which proposals may be made

(1) Subject to the following paragraphs of this regulation, where a billing authority or an interested person is of the opinion that a list is inaccurate because –

…

(d) since the valuation was first shown in the list as applicable to the dwelling, one (or more) of the events mentioned in subparagraph (a) of paragraph (1) of regulation 4 has occurred…

that authority or person may make a proposal for the alteration of the list

14. Day from which alteration has effect

…

(3) An alteration reflecting a material reduction in the value of a dwelling shall have effect from the day on which the circumstances which caused that reduction arose."

The historical context

19. In the light of the arguments which have been addressed to us it is also necessary to see these provisions relating to council tax pursuant to the 1992 Act against the background of the earlier statutes dealing with the rating of both non-domestic and domestic property. I again emphasise in italics the provisions of particular importance for the arguments on this appeal.
20. Thus under the General Rate Act 1967 the provisions dealing with the alteration of a valuation list for either type of property were contained in section 20. For these purposes rateable value was based on the rent at which the hereditament might reasonably be expected to let (on the premise that the tenant undertook to pay tenant's rates and taxes and the landlord undertook to bear the costs of repairs and insurance) and the assumption was that the hereditament and the locality were "in the same state" as at the time of valuation. Thus section 20 provided:

General Rate Act 1967

"20 (1) For the purposes of any alteration of a valuation…the value or altered value to be ascribed to the heriditament 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

(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."

21. Section 20 of the 1967 Act was considered by this court and the House of Lords in Addis Ltd v. Clement (VO) [1987] RA 1 (CA) and Clement (VO) v. Addis Ltd [1988] 1 WLR 301 (HL). The issue was whether for the purposes of a valuation under section 20 the effect on value of a nearby enterprise zone should be taken into account or disregarded. The economic effect of the enterprise zone was to depress surrounding rental values (since properties on an enterprise zone had the benefit of an exemption from rates and other taxes and of other advantages accruing to them and their owners or tenants). The Lands Tribunal held that the benefits of the enterprise zone were a change in the state of the locality and adopted the lower valuation. The valuation officer appealed. His counsel submitted that the valuation was only concerned with "physical factors, or at least factors which affect the physical use and enjoyment of the hereditament", as distinct from "benefits or disbenefits that are merely financial or economic" (at 9). Counsel for the ratepayers rejected "the distinction which counsel for the valuation officer still draws between physical and non-physical factors", but this court accepted it. Woolf LJ put the matter in this way (at 10):

"In general, and I emphasise the words "in general", I accept the approach of counsel for the valuation officer that s 20(1)(b) is limited to physical factors or factors which affect the physical enjoyment of a hereditament. In broad terms the way s 20(1)(b) is intended to operate is that you value the hereditament and any building upon it as it exists at the date of proposal in the setting in which it is situated (with that setting having the actual characteristics of the locality as they would be observed at that date if the locality was to be inspected) on the basis of its 1973 value. For the purposes of carrying out that valuation, it is the economic climate, both local and national, of 1973 which has to be considered and not that at the date of the proposal except to the extent that alterations in the economic conditions result in changes in the locality which are capable of being observed "on the ground" in the locality."

22. On the other hand, Woolf LJ also said this, to limit what he understood as being the effect of his ruling (at 11):

"I should however emphasise that I do not accept counsel for the valuation officer's submission that because a consideration is of a financial nature it cannot be considered as it exists at the date of the proposal because it is incapable of being converted into 1973 values. I would therefore regard it as perfectly appropriate in considering the quality of transport services as this could materially affect an assessment of the quality of the service. Likewise if the existence of a development zone affects the prosperity of an area in a manner which is manifest and can be observed, this should be taken into account. The features which demonstrate a change in prosperity in this way could be properly taken into account as part of the setting in which the valuation at 1973 values is to be made."

23. Although this court's decision was reversed by the House of Lords (see below), it is significant for two reasons. First, because it is generally regarded that the 1988 Act, by introducing the word "physical" into the correlative provisions of that Act, effected a statutory reversal of the House of Lords' decision and a preference for this court's reasoning and conclusion. Therefore it is part of the important background to such provisions, which now include those of the 1992 Act. Secondly, because Mr Tim Buley, as advocate to the court, has submitted to us that even with the word "physical" written into section 24(10)'s definition of "material reduction" the judgment of Woolf LJ throws light on the width of that word as encompassing traffic, as an observable component of the current physical state of a locality.
24. In this connection it may be observed that counsel for the valuation officer, whose submission was broadly accepted by Woolf LJ, himself contemplated, as Woolf LJ recorded in his judgment, the following as falling within physical factors:

"new public sewers, the opening of a street market, no waiting restrictions on an adjacent highway or a change in the Heathrow flight path bringing aircraft directly overhead" (at 9).

25. Nevertheless, it must be recalled that Woolf LJ and counsel for the valuation officer were each dealing with section 20(1)(b) which in terms referred to "occupation and use" of other premises in the locality as well as "transport services and other facilities available in the locality" and "other matters affecting the amenities of the locality". The relevance of such language was stressed by both Woolf LJ and Sir George Waller in their judgments. Thus Woolf LJ said (at 11):

"…in relation to both amenities and facilities I do recognise that the effects of an area being designated as a development zone, as happens with a smokeless zone, can result in changes in the facilities and the amenities of the locality which can be taken into account."

And Sir George Waller said (at 14):

"In interpreting the section it is necessary to consider the matters which Parliament provided should be taken into consideration. Occupation would be part of the physical state and use would be associated with the physical state. Similarly transport services and other facilities in the locality, although not a physical part of the locality, would be associated physically with the locality. This would also apply to "other matters affecting the amenities of the locality"."

26. In the House of Lords, the critical factor was their Lordships' view that the statutory word "state", unaccompanied by any qualifying epithet such as "physical", should "be given a wide construction, so as to include intangible as well as physical advantages and disadvantages" (at 305H).
27. In the 1988 Act which, because domestic property was originally going to be covered by the new world of the community charge, applies only to non-domestic property, the relevant provision which enacts the decision of this court in Addis v. Clement, is to be found in Schedule 6 (introduced at section 56), paragraph 2(6) and (7) of which provides:

Local Government Finance Act 1988, Schedule 6:

"2(6) Where the rateable value is determined with a view to making an alteration to a list which has been compiled (whether or not it is still in force) the matters mentioned in sub-paragraph (7) below shall be taken to be as they are assumed to be on the [material day]…

(7) The matters are –

(a) matters affecting the physical state or physical enjoyment of the hereditament,…

(b) the mode or category of occupation of the hereditament,…

(c) the quantity of minerals or other substances in or extracted from the hereditament,

[cc] the quantity of refuse or waste material which is brought onto and permanently deposited on the hereditament,

(d) matters affecting the physical state of the locality in which the hereditament is situated or which, though not affecting the physical state of the locality, are nonetheless physically manifest there,

(e) the use or occupation of other premises situated in the locality of the hereditment."

28. In the Non-Domestic Rating (Alteration of Lists and Appeals) Regulations 1993, regulation 3 defines "material change of circumstances", which is the trigger for an alteration in this context, as "a change in any of the matters mentioned in paragraph 2(7) of Schedule 6 to the [1988] Act".
29. The introduction into the language of the 1988 Act of "physical" and "physical enjoyment" and "physically manifest" are to be noted, as is the recognition that something may be physically manifest without itself affecting the physical state of the locality. As Walker LJ said in Williams (VO) v. Scottish and Newcastle Retail Limited [2001] RA 41 (CA) at para 22:

"It is worth noting in passing that references to the "physical" state or enjoyment of property in para 2(7)(a) and (d) represent a statutory reversal of the decision of the House of Lords in Addis Ltd v. Clement [1988] RA 25, a decision on s 20 of the 1967 Act."

30. In the present case, Mr Timothy Mould QC, on behalf of the listing officer, contrasts the language of Schedule 6 para 2(7)(a) and (d) of the 1988 Act with both the earlier language of section 20 of the 1967 Act and with the later language of the 1992 Act, which incorporates the limiting expression "physical" to describe the state of the locality but does not include the broader alternative "or which, though not affecting the physical state of the locality, are nonetheless physically manifest there". Mr Mould submits that this contrast, this omission, is highly pertinent: although the 1988 Act only concerns non-domestic property and the 1992 Act only concerns domestic property, nevertheless all three Acts, the 1967, 1988 and 1992 Acts, are all part of the same history whereby valuations are made by reference to the market values of an earlier date but on the assumption that the property concerned and its locality are physically as they are on the later date at which they fall to be valued. Mr Mould submits that this technique represents the doctrine of rebus sic stantibus, which has two limbs, as described by Walker LJ at paras 17ff of Williams, one dealing with physical state and one with use. The difference is, submits Mr Mould, that whereas the language of the 1988 Act reflects both limbs of that doctrine, the much more confined language of the 1992 Act only reflects the first limb.

Submissions

31. On behalf of the listing officer, Mr Mould made submissions under three heads: language, policy, and historical background focussing on the comparison of the language of the 1988 and 1992 Acts.
32. Under the head of language, Mr Mould emphasised the words "physical" in combination with "state" and "change" and "locality". He submitted that these words, at any rate in combination, suggest that what the statute has in mind is an observable change in the physical fabric of the local area in which the dwelling is situated. Fluctuating matters, such as traffic and its environmental consequences in terms of noise and pollution, do not sit naturally or easily within such a concept, especially as they are unlikely to be associated with any given locality. Traffic growth is a well established national trend not confined to any particular area or locality. He sought to derive support for this submission from (1) the expression "events" in regulation 5(1)(d) of the 2003 Alteration Regulations which is used to describe the circumstances of inter alia a material increase or reduction, (2) the provision that an alteration reflecting a material reduction would have effect "from the day on which the circumstances which caused that reduction arose" in regulation 14(3) of the same Regulations, and (3) the assumption contained in regulation 6(3)(a) of the 1992 Valuation Regulations that "the physical state of the locality…was the same as on the date from which the alteration of the list would have effect", viz "the day on which the circumstances which caused that reduction arose" (see (2) above). All these provisions combine, he submitted, to emphasise that the change in question is something which can be identified and dated more or less accurately to a specific event, such as occurs by reason of change in the fabric of the locality, rather than to a process which is part of the use of the locality. In this context, he referred to the well-known concept in this area of rebus sic stantibus (discussed by Walker LJ in Williams) with its two separate limbs, one concerned with physical state and the other with use.
33. Under the head of policy, Mr Mould submitted that the restriction on the right to propose an alteration in the valuation list governed by the concepts of "material increase" and "material reduction" is a deliberate policy to limit tightly the circumstances in which a dwelling can be revalued into a different valuation band. That policy is reinforced by the need to show a change which is both local and physical. Changes in mere value because of economic or market factors, and changes which are due to broad social or economic or national trends, are not intended to be encapsulated in this restrictive regime.
34. Under the head of the comparison in the language of the 1988 and 1992 Acts, Mr Mould emphasised the factors to which my description above of the legislative background and context of the 1992 Act has drawn attention. In particular he emphasised the absence from the 1992 Act of the concept built into the 1988 Act of a material change of circumstances arising not only from change in the physical state of a locality but also from matters which "though not affecting the physical state of the locality, are nonetheless physically manifest there".
35. We were greatly assisted on this appeal by the submissions of Mr Buley, appointed as an advocate to the court by the Solicitor General pursuant to the invitation of the Civil Appeal Office at the suggestion of Sir Henry Brooke in giving permission to appeal. Sir Henry directed that a request be made for such an appointment "since the individual householders did not appear in the High Court and the Valuation Tribunal is not willing to play any active role in the appeal".
36. In his helpful and attractive submissions Mr Buley observed that linguistic and policy considerations are ultimately equivocal and neutral. As for language, this is because traffic and its environmental consequences in terms of noise and pollution are physical phenomena (as indeed was common ground). The word "state" by itself can be given an extremely wide meaning as was emphasised by the House of Lords in Clement v. Addis, and even this court in Addis v. Clement while glossing the word "state" as "physical state" was still prepared to give to that phrase a wide meaning which would embrace matters such as traffic. As for policy, Mr Buley accepted the distinction between national and local change, as indeed the language of the statute mandated, and in particular economic and market change, but still submitted that where a national change in physical state, such as traffic, had particular local consequences there was nothing in the language or the policy of the Act to exclude it. Therefore policy considerations were also ultimately neutral. As for Mr Mould's reliance on the different language of the 1988 Act, Mr Buley accepted that there was some force in the point, but that it did not follow that the same result could not be achieved without the additional language found in the earlier Act. In general, therefore, Mr Buley considered that this case lay on the borderline of the statutory concept of change in the physical state of a locality, but ultimately he supported the decision and reasoning of the judge, which it will be recalled was to give to the statutory concept a broader rather than a narrower scope where there was a real local effect which clearly affected the value of a property.
37. In particular, however, Mr Buley supported the judge by an additional argument, which he submitted was no less than decisive, by reference to regulation 6(2) and (3) of the 1992 Valuation Regulations. He pointed out that the assumptions of regulation 6(2) provide the only means by which matters which relate to a date other than 1 April 1991 can be taken into account for the purpose of finding a valuation: in particular there is the statutory assumption that "the physical state of the locality" was the same "as at the relevant date", ie the date of actual valuation, or, broadly speaking, 1 April 1993. Similarly, in the case of a valuation for the purposes of an alteration in the list, regulation 6(3) mandates the assumption that "the physical state of the locality" is the same as on the date from which the alteration would take effect, ie the day on which the circumstances which caused the material reduction arose (regulation 14(3) of the 1993 Alteration Regulations). For these purposes, Mr Buley submits that it is absurd to distinguish between the existence of a nearby road and the traffic on it, albeit that was the distinction which the listing officer's case required. Thus, on the listing officer's case the existence of the road had to be taken into account as of the valuation date (ie either as of 1 April 1993 or the time of subsequent change), but the extent of traffic on it, because not itself part of "the physical state of the locality", had to be taken to be as it was on 1 April 1991. Suppose, then, that in between 1 April 1991 and 1 April 1993 a quiet residential road had become a "rat-run" but had otherwise not changed in its fabric: surely the dwelling had to be valued on the basis of the rat-run on which it stood and not on the basis of its erstwhile existence as a quiet residential road. The same applied if the change had occurred in between original valuation and a valuation for the purpose of an alteration. Mr Buley built into this submission the concession that Mr Mould was prepared to make in the course of the hearing, that in practice the listing officer would value both road and its traffic together as of the valuation date, original or subsequent, and not as of 1 April 1991. Therefore, submitted Mr Buley, Mr Mould was himself accepting that traffic was part of "the physical state of the dwelling's locality".

Discussion

38. Part of the difficulties of this case lies in the mystery of how a typical valuation, made by reference to 1 April 1991 values but also by reference to a later date for ascertaining the physical state of a dwelling and its locality, is actually performed. That mystery might be resolved or at least diluted if the court had access to the "bible" of information of 1 April 1991 values prepared by the Commissioners of Inland Revenue (see section 21 of the 1992 Act). For instance, if a house of a certain size, layout or character as of the 1993 date stands on a certain kind of road as of the 1993 date, does the 1 April 1991 value which the listing officer ascribes to that house take into account the amount of traffic (noise and pollution) generated by that particular road, or only the notional amount of traffic etc which a road of that kind might be assumed to generate? In practice, as Mr Mould accepts, the listing officer might be influenced by the amount of traffic he witnesses on the day of his inspection; but in theory, since he is not valuing the house on that day as at that day's value, he is only in a position, or so I would surmise, to ask himself: How much, by reference to my 1 April 1991 bible, was a house like this on a road like this in a locality like this worth on 1 April 1991? And when he says "like this", he is confined by the statute to consider only the "size, layout and character" of the house and the "physical state of its locality".
39. In my judgment, and I bear in mind all the various submissions which have been made to the court, the listing officer is properly concerned only with the essential fabric and character of house and locality, but not with other matters which go to their enjoyment, use, occupation or activity, such as, I would suggest, the particular degree of traffic to be met on a particular date. Thus, just as any one house has to be valued according to its actual physical configuration, but otherwise on other assumptions as to its state of repair and so on and according to a bible of historical value, so also it has to be valued according to the physical state of its locality but otherwise according to a bible of historical value which itself, as I imagine, contains comparative guidelines as to how a house's value might differ, in general, depending on such matters as its physical location on a road of a certain category or configuration. I agree therefore in essence with Mr Mould's submissions, and would distinguish between that physical state which is the first limb of the concept of rebus sic stantibus and that use which constitutes its second limb (see Williams at para 17).
40. I would seek to explain my reasons for this conclusion as follows.
41. Whereas I accept, as was common ground, that the expression "physical state" could embrace traffic and its physical consequences such as noise and pollution, in context the emphasis on "physical" state is intended to distinguish matters of physical fabric (and perhaps character, see paras 46 and 50 below) from matters of use, activity, enjoyment or occupation. That is, I think, supported by the parallel treatment of both dwelling and locality in the provisions of the statute. Thus the two matters which have to be taken "as is" at the time of the list or its alteration, rather than as at the base 1991 valuation date, are dwelling and locality, but only in certain respects which are spelled out in the statutory material. So, regulation 6(2)(d) of the 1992 Valuation Regulations speaks of "the size, layout and character of the dwelling, and the physical state of its locality". Regulation 6(3)(b)(i) of the same Regulations glosses "size, layout and character" of a dwelling as its "physical condition". Similarly, section 24(10) defines both "material increase" and "material reduction" in terms of physical change, namely "any increase which is caused (in whole or in part) by any building, engineering or other operation carried out in relation to the dwelling" (but only where there is also a relevant transaction), and "any reduction which is caused (in whole or in part) by the demolition of any part of the dwelling, any change in the physical state of the dwelling's locality or any adaptation of the dwelling to make it suitable for use by a physically disabled person". In particular, the sandwiching of "any change in the physical state of the dwelling's locality" (the phrase in issue on this appeal) in between such demolition or adaptation of the dwelling is, to my mind, especially telling.
42. Secondly, this reading of the 1992 Act is strongly supported by the difference in language between its provisions and those of the 1988 Act, described above. In particular, Schedule 6, paragraph 2(7) of the 1988 Act distinguishes between both the "physical state" and "physical enjoyment" of the hereditament itself on the one hand, and on the other hand between "the physical state of the locality" and other matters which are "physically manifest" there without themselves affecting the physical state of the locality. Those matters would appear to include such matters as were discussed by the court of appeal in Addis v. Clement, such as "alterations in economic conditions" which "result in changes in the locality which are capable of being observed "on the ground" in the locality" (per Woolf LJ at 10). It is particularly to be noted that, even though paragraph 2(7) was intended to enact the decision in the court of appeal in Addis v. Clement (in preference to the decision in the House of Lords), it recognises that matters which may be "physically manifest" may not in themselves thereby affect the physical state of the locality. That is to give the expression "physical state of the locality" a deliberately narrow meaning, and one which I have sought to express above. It is difficult to think that that expression, applied in the valuation context in the 1988 Act, was not intended to have the same meaning where it appears in the 1992 Act.
43. In this connection, Valuation Office Agency Guidance on the 1988 Act (RAT IA dated 26 January 2006, and amended since to include advice on the Smoking Ban) is directed towards an explanation of paragraph 2(7). It contains the following advice:

"2.3 The Schedule 6 para 2(7) matters can broadly be described as falling within the 2 established limbs of the Rebus principle: "physical" matters and matters concerning mode or category of use. The intention was that economic matters such as level of interest rates, state of the economy, propensity to spend, together with attitude matters such as fashion, are taken as they were in the AVD [antecedent valuation date] setting. But a Schedule 6 para 2(7) matter is not to be disregarded on account of the fact that its cause is economic…

3.4.5 A useful working rule is for the valuer to envisage the hypothetical landlord and tenant inspecting the hereditament to be valued and consider what would impress them as physically observable or physically manifest features in the locality of the hereditament. These might include:

• traffic flow

• pedestrian flow or footfall

• noise, fumes or vibration

• aircraft movements

• increased trading hours of licensed premises

3.4.6 If any of these change to a degree which would be perceptible as between the date of compilation of the list and the material day, then there is a MCC [material change of circumstances]. Perceptible does not mean simply measurable."

44. If this advice is correct, and I recognise that it is not binding, traffic flow is treated not as part of the physical state of a locality but as physically manifest there. I would accept the distinction, and apply it to the 1992 Act. I do not think that Mr Buley is correct to submit, or that the judge was correct to conclude, that "physical state of [the] locality" in section 24(10) of the 1992 Act and regulation 6(2) and (3) of the 1992 Valuation Regulations should receive the same interpretation as if that phrase stood as short-hand for the whole of the relevant language of paragraph 2(7) of Schedule 6 to the 1988 Act, and that, whereas in the 1988 Act Parliament had wished to put the matter beyond doubt, that was unnecessary in terms of the 1992 Act. It seems to me, with respect, that that is not a possible conclusion, especially as the former Act contains the wording "though not affecting the physical state of the locality". Similarly, I do not accept Mr Buley's submission that the court of appeal in Addis v. Clement glossed "physical state" as widely as to include merely "physically manifest" matters. In my judgment it did not. It merely accepted that although "state" (the single statutory word in the 1967 Act) was not wide enough to encompass merely economic effects, it was wide enough to encompass both physical factors and factors affecting physical use and enjoyment. In particular, Sir George Waller's phrase "although not a physical part of the locality, would be associated physically with the locality" (at 14, cited above) appears to have borne fruit in the 1988 statutory language.
45. Thirdly, it seems to me that this distinction is supported by other elements in the language of the 1992 Act's associated regulations. Thus a material increase and material reduction are spoken of as "events" (regulation 5(1)(d) of the 1993 Alteration Regulations), thus an alteration reflecting a material reduction resulting from a change in the physical condition of the dwelling or a change in the physical state of the locality takes effect "from the day on which the circumstances which caused that reduction arose" (regulation 14 of the same Regulations), and thus the physical state of the locality is to be assumed for such purposes to be the same as on that date from which the alteration of the list would have effect (regulation 6(3)(a) and (b) of the 1992 Valuation Regulations). All this suggests that the changes in question are events which can be ascribed to a particular day, which is what, broadly speaking, one would expect of a change to the physical condition of a dwelling or to the physical fabric of a locality. It is otherwise, as it seems to me, in the case of something like the gradual development of traffic over the years. While it is true that, at any given period of time, the flow of traffic could be measured and found to have changed materially from what it had been at some earlier period and perhaps also to have caused a material change in noise and pollution, it would not be possible to ascribe a date to that change other than a merely randomly selected date. The judge was not impressed by these points, saying that even though a change might be gradual "there comes a time when the situation is such that the line is crossed and the value is reduced to an extent that justifies a change of banding" (at para 26). However, the statutory language concentrates not so much on the fact of the reduction in value (although that is a necessary consequence) but on the "circumstances which caused that reduction" (regulation 14) which are of course spelled out in the definition of material reduction at section 24(10).
46. Fourthly, to address Mr Buley's "decisive" point in relation to regulation 6(2) and (3) of the 1992 Valuation Regulations, it seems to me that, persuasively argued as this point was, ultimately it assumed the answer it purported to find. The question in issue is whether traffic flow is part of the "physical state of [the] locality". If it is, then the rest follows. But if it is not, then there is no statutory assumption that has to be made concerning it. Mr Buley submits that if traffic flow is not part of the "physical state of [the] locality", then it follows that it has to be taken to be what it was on 1 April 1991: for this submission he relies on regulation 6(1) which states that, on the assumptions mentioned in regulation 6(2) and (3), the value must be taken to be the 1 April 1991 open market value. I am not sure that that tells one anything about any particular level of traffic flow as of that date. But even if it does, the effect of these provisions would merely be that for a given road by which a dwelling stood, be it motorway, major road, residential road or whatever, the fabric (and perhaps character) would be taken to be what it was at the time of valuation, but, in terms of the effect of such a road on the overall value of the dwelling, the extent of traffic and its environmental consequences would be taken to be something conventional bound up in the bible of 1 April 1991 values. Whatever regard the listing officer might in practice have to the extent of traffic at the time of inspection, he would still be required to find a valuation in accordance with the bible of those earlier values.
47. Fifthly, it seems to me that policy considerations support this analysis. The circumstances in which an alteration in the list might be permitted (outside the limited periods for correcting an original error or upon the arrival of a new taxpayer) are themselves extremely limited. They are set out in section 24(4) of the 1992 Act and repeated in regulation 4 of the 1993 Alteration Regulations. Apart from the two cases, themselves tightly defined, of material increase and material reduction, the only other two permitted events are special cases dealing with "composite hereditaments". Regulation 4 is itself headed "Restrictions on alteration of valuation bands" and the language used is that "No alteration shall be made…unless". The clear policy is to be restrictive. Given the fact that valuations are in bands, and that a change of value which does not carry a dwelling into a different band is of no ultimate relevance, it is understandable that alteration is tightly limited. That tight limitation can be contrasted with the much more relaxed provisions relating to non-domestic hereditaments. For that purpose a "material change of circumstances" is defined as a change in any of the matters mentioned in paragraph 2(7) of Schedule 6 to the 1988 Act, and those matters include the physical enjoyment of the hereditament, its mode or category of occupation, matters which do not affect the physical state of the locality but are nonetheless physically manifest there, and the use or occupation of other premises in the locality. It is perhaps understandable that alteration of the rateable value of non-domestic hereditaments is permitted across a wider range of circumstances, seeing that non-domestic rates can be extremely costly and have to be earned out of the business in question, which can so easily be affected by all kinds of matters. But whether that is a correct explanation of the difference, it is in my judgment manifest that the 1992 Act draws a much tighter restriction on the possibilities of altering a valuation list in the case of domestic property than the 1988 Act did in the case of non-domestic property.
48. Given this tight limitation, it would seem to me to be contrary to the policy of the 1992 Act to permit an alteration in the list for a reason which, although of course it manifests itself locally, is in truth part of a nationwide trend. If it were otherwise, then, what is intended to be a narrow and specific gateway designed to accommodate changes in the physical state of dwelling or locality becomes a nationwide opportunity to revalue (but always according to 1991 values) by reason of something which is happening throughout the land. It is different if the fabric of the local road changes, as where a motorway or any other road has an extra lane fitted or is itself altered in some other way. It may also be different if the character of the road changes, as where a road is re-categorised, or where signage or the stoppage up of other roads directs traffic into a previous backwater; or possibly even if a quiet road becomes a "rat-run". It may be that in such circumstances, it is a matter for the expertise of listing officers and valuation tribunals to decide whether the "physical state of the locality" (as I have understood that phrase in this judgment) has changed. In general, however, it is understandable that the test of whether valuation might proceed to show that a material reduction has occurred is that there has to be a change in either the physical condition of the dwelling or in the physical state of the locality.
49. I therefore respectfully cannot agree with the judge when he concluded, in the critical reasoning of his judgment cited above, that he could see no good reason to give a narrow construction to the relevant provisions. He supported his wider construction with the argument that the purpose of the statute was to achieve a fair valuation, and that would not be achieved if account were not taken of a change "which clearly affects the value of the property…He should not have to pay more than the amount based upon the present value of his dwelling" (at para 29). However, the value in question must at the end of the day be related back to 1991 values and not present value, and it does not follow at all, just because in modern conditions a seller of a dwelling similar to that of the householder respondents has to accept even a significantly lower price than he was hoping for, that therefore the relevant cause of that disappointment would have to be reflected in a reduction in value in terms of the bible of 1 April 1991 values. It is necessary therefore to stay with the statutory language, which fixes the value in terms of the 1991 market, save to the extent that that 1991 value would itself have to reflect a subsequent change in the physical condition of dwelling or the physical state of the locality.
50. Finally, I would accept that there may be a range of situations which are difficult to evaluate for these purposes. I have mentioned the case where the character of a road itself changes. Other examples, themselves mentioned by the judge, are where a road is built and left unused and then at a later date is opened, or where a quarry or factory has ceased operation and then at a later date has started up again. I would see such cases as possibly raising a question not merely of use or occupation, but of the character of road, quarry or factory concerned and hence possibly of the physical state of the locality. I would myself leave such questions to the expertise of a valuation tribunal as ones where the facts would be capable of being brought within the statutory language.
51. I have sympathy for the householders, but it appears to me that their real cause for complaint is not so much of a material reduction as defined by the statute as that there have not, since 1993, been regular or any revaluations as might have been anticipated and/or that improvements to the motorway which have been promised and carried out on other stretches of the motorway have not been carried out in their vicinity.
52. In the present case, however, I consider that the very different circumstance of merely a greater level of traffic (together with its environmental consequences) on a motorway which it is agreed has not in itself changed at all in its physical state throughout the relevant period is not capable of coming within the statutory language, and that the valuation tribunal therefore erred in accepting that it could.

Conclusion

53. I would therefore allow this appeal.

Lord Justice Dyson:

54. I agree.

Lord Justice Waller:

55. I also agree.