England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT IN MANCHESTER
(ON APPEAL FROM THE PRESTON MAGISTRATES' COURT
BY WAY OF CASE STATED)

		Manchester Civil Justice Centre 1 Bridge Street, Manchester M60 9DJ
		19/07/2012

MR JUSTICE HICKINBOTTOM:

Background

1. Oyston Mill, Strand Road, Preston is, as its name suggests, a substantial former mill, now broken into a number of commercial units. It is owned by Denwis Ltd.
2. The Oyston Angel Charity (formerly the Oyston Angel Trust, "the Trust") is a charity, set up by a charitable trust deed on 4 February 2005. Its objects are set out in paragraph 2.2 of that deed, as follows:

"The objects of the Trust are the social relief, rehabilitation and the promotion of the welfare (whether material, social or mental) of

2.2.1 offenders and former offenders;

2.2.2 persons under a disability (including, without limitation, those suffering or who have suffered from any form of addiction or substance abuse); and

2.2.3 persons under social or economic deprivation;

by way of any method which shall be recognised as charitable and in particular, but without limitation, by grant or other financial assistance, resettlement, the provision of or assistance with accommodation, education, counselling and the provision of other advice, training, retaining and the finding or provision of work opportunities."

The Trust was registered as a charity with the Charity Commissioners on 30 August 2011, which is conclusive evidence that it is a charity during the period of registration; but in any event, prior to that, the Trust had exclusively charitable objects, and was accepted as a charity for tax purposes. It is uncontroversial that, at all relevant times, the Trust has been a charity as defined in section 67(1) of the Local Government Finance Act 1988 ("the 1988 Act"), i.e. "an institution or other organisation established for charitable purposes only or any persons administering a trust established for charitable purposes only".

3. On 30 March 2011, Denwis Ltd entered into a Licence Agreement with the Trust, in which they granted the Trust rights over the units at the Oyston Mill, subject to terms and conditions including the following:

i) The Trust was given a right to occupy and use the units (paragraph 4).

ii) The licence was subject to a condition that "the permitted use … shall be for charitable purposes only" (paragraph 5).

iii) The licence was expressed to be personal to the Trust, but the Trust could "sublet" provided that the sub-licensees used the parts sub-licensed for charitable services (paragraph 7).

iv) The Trust was required to pay all rates, if any were payable (paragraph 12(b)).

4. In respect of that licence, two important points are not in issue.

i) The licence only applied to the units with a rateable value in excess of £2,600, then the value above which an empty rates charge applied. Units below that value were not included. Before the magistrates, the Council suggested that this was evidence that the licence was granted purely for the avoidance of tax, and consequently it could be ignored under the principle established by Furniss v Dawson [1984] AC 474. However, as I understand it, the Council did not actively pursue that contention before the magistrates; and certainly it does not pursue it before this court.

ii) It was common ground before the magistrates, and before me, that, as licensee, the Trust became liable for any rates payable.

5. All relevant units have been unoccupied for some time (over six months), although one (Unit No 101) has now been sub-licensed to another charity (Methodist Action Northwest Ltd) as a charity shop.
6. Preston City Council ("the Council") is the relevant rating authority for the purposes of collection of non-domestic rates. It issued demands to the Trust for the payment of rates for 2011-12 in respect of eight units at the mill, which were not paid. The Council consequently applied to the Preston Magistrates' Court, under the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 (SI 1989 No 1058), for liability orders. The magistrates found that the Trust did not itself intend to occupy the units or any of them; but, primarily on the basis of the restriction on the use to which sub-licensees could put the property, they were satisfied that, when next in use, each unit would be wholly or mainly used for charitable purposes. On that basis the magistrates considered that the units were zero-rated for rating purposes, by virtue of section 45A(2) of the Local Government Finance Act 1988 ("the 1988 Act").
7. It is against that decision that the Council now appeals.

The Legal Framework

8. Historically, in general local rates were levied on all occupied premises, but only occupied premises. However, since the mid-20th century, there have been two relevant changes to that principle.
9. The first change related to the treatment of charities.
10. London County Council v Erith Parish Churchwardens [1893] AC 562 established that absence of profit was not a ground for exemption from liability for rates; and, following the changes brought about by the Local Government Act 1948, the practice of allowing charities ex gratia reductions of assessments was regarded as inappropriate. The Rating and Valuation (Miscellaneous Provisions) Act 1955, for the first time granted charities formal relief in respect of rates on premises which it occupied.
11. Section 11 of the Rating and Valuation Act 1961, re-enacted in section 40 of the General Rate Act 1967, provided that rates could not be more than one-half of the full rate if premises (i) were occupied by a charity, and (ii) were "wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)". The rating authority was given power to reduce or remit payment of such rates, provided that they did not exceed one-half of the amount that would have been chargeable otherwise (i.e. the "full rate"). If the charity ceased to occupy the premises or there was some other change in the occupation of the premises, or if the charity ceased to use the premises wholly or mainly for charitable purposes, the remission ceased (section 11(1) and (4) of the 1961 Act, repeated in section 40(5) of the 1967 Act).
12. The current provision for charities in occupation of premises is found in section 43 of the 1988 Act. Section 43(5) provides a formula by which certain ratepayers pay one-fifth of the full rate, those being described in section 43(6) as follows:

"(a) the ratepayer is a charity or trustees for a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities), or

(b) the ratepayer is a registered [community amateur sports club] and the hereditament is wholly or mainly used –

(i) for the purposes of that club, or

(ii) for the purposes of that club and of other such registered clubs."

13. Consequently, under section 43(5), for a charity, liability for only the reduced rate is dependent upon two legally discrete (although usually factually related) conditions: (i) occupation of the rateable property by the charity, and (ii) use of the property wholly or mainly for charitable purposes (Glasgow Corporation v Johnstone [1965] AC 609 at page 618B-C, per Lord Reid).
14. The second change related to the treatment of unoccupied properties.
15. Historically, as I have indicated, liability for rates fell to be paid on occupied properties only. Section 17 of, and Schedule 1 to, the General Rate Act 1967 introduced liability for rates in respect of unoccupied properties, for the first time; but (i) whilst unoccupied, only one-half of the full rate was payable, and (ii) there were exemptions or partial exemptions for some categories of ratepayer, including charities.
16. That is still, generally, the current position under the 1988 Act. Under section 45, an owner of unoccupied property is liable for rates, at no more than the full rate that would be applicable if the property were occupied but no less than half that rate, the precise multiplicand being subject to Ministerial Order. Section 45A(2) and (3) (introduced by section 1(2) of the Rating (Empty Properties) Act 2007) provide that two categories of unoccupied premises shall be zero-rated for non-domestic rating purposes, thus:

"(2) The first case is where –

(a) the ratepayer is a charity or trustees for a charity, and

(b) it appears that when next in use the hereditament will be wholly or mainly used for charitable purposes (whether of that charity or of that and other charities).

(3) The second case is where –

(a) the ratepayer is a registered [community amateur sports club], and

(b) it appears that when the hereditament is next in use-

(i) it will be wholly or mainly used for the purposes of that club and that club will be such a registered club, or

(ii) it will be wholly or mainly used for the purposes of two of more clubs including that club, and each of those clubs will be such a registered club."

The Issue

17. Before the magistrates, section 45A(2)(a) was not in issue: for the reasons I have indicated, it was accepted that the Trust was a charity for the purposes of the 1988 Act (see paragraph 2 above).
18. The issue before the magistrates concerned the proper construction of section 45A(2)(b). The Council contended that a property is zero-rated under that provision only if it appears that, when next in use, the property will be occupied and used by the owning charity itself. The Trust submitted that it was not necessary to show that the owning charity would occupy the property. That was the issue that the magistrates had to determine.
19. For the sake of completeness, I should say that, before the magistrates, the Trust contended that the phrase in section 45A(2)(b) "whether of that charity or of that and other charities" meant "whether of that charity or other charities", i.e. that is sufficient for zero-rating under the provision for it to appear that the next use would be for any charitable purposes whether including those of the currently owning charity or not. Although Mr Hanbury did not maintain that position before me (see paragraph 25 below), that was a proposition that the Council did not apparently seek to challenge before the magistrates. As an issue, the charitable purposes of the charity occupying the single occupied unit or of charities which the trust sought as sub-licensees was therefore not before the magistrates. The only issue before them was whether, in the forward-looking exercise that section 45A(2)(b) entails, it had to appear that the owning charity would next occupy and use the property.
20. On that issue, the magistrates preferred the Trust's submission. The units were, consequently, zero-rated; and the maigistrates therefore refused to make the liability orders for which the Council had applied.
21. The Council sought to appeal, and, in their case stated, the magistrates posed the following question for this court:

"Whether the justices were right to conclude that the [Trust] had established that the [Trust] was under section 45A(2) of the Local Government Act 1988 exempted from liability for each of the applications for liability orders on the basis that the occupier/or user of each of the premises the subject of the said application would be charities other than the [Trust]."

That question reflects the limited issue upon which the case before the magistrates turned.

Discussion

22. Before me, contrary to the submissions of Mr Hanbury for the Trust, Mr Reed for the Council maintained the position that the Council had taken before the magistrates, namely that, for the zero-rating provision in section 45A(2)(b) to apply, it must appear that the charity owning the property will next occupy the property. It is insufficient for it to appear that other charities will occupy the property, to the exclusion of the owning charity, whatever the charitable purposes of those other charities might be.
23. In regard to this issue, as Mr Hanbury submitted, the construction of much of the section is uncontroversial. "Next in use" appears elsewhere in the statute (see, e.g., sections 48 and 66(5)), and is self-explanatory. "Wholly or mainly used for charitable purposes" is a phrase which has been the subject of judicial scrutiny in the past but which, in this case, is not in dispute. The crucial phrase in section 45A(2)(b), for the purposes of this appeal, is "used for charitable purposes (whether of that charity or that and other charities)".
24. The "charitable purposes" of a charity are its objects: in so far as that proposition requires supportive authority, see, e.g., Oxfam v Birmingham City District Council [1976] AC 126 at page 148E-F, per Lord Morris of Borth-y-Gest. The "charitable purposes" of the Trust are, therefore, those objects set out in paragraph 2.2 of its trust deed, quoted above (at paragraph 2).
25. Mr Hanbury submitted that, on the ordinary, natural and plain meaning of the words used, that crucial phrase therefore unambiguously means "used for the charitable objects of the owning charity, accompanied or not by other charitable purposes"; and, in this case, "used for the charitable objects of the Trust, accompanied or not by other charitable purposes".
26. Mr Reed, however, submitted that that was not the only possible meaning of the phrase, and it was not its proper meaning when it is seen in context. He relied upon the following arguments to advance that proposition.
27. He submitted that it was necessary to take a purposive approach to the construction of the provision; and the entire focus of the rating regime is upon occupation. To obtain the reduction under section 43(6), there are two criteria: occupation by the charity, and use for charitable purposes. Each is an essential requirement. Section 45A(2)(b) mirrors section 46(3). Given the nature of the whole scheme of the non-domestic rating regime with its concentration on occupation, and the specific focus in section 46(3) on occupation and use by the relevant charity, in the forward-looking exercise that section 45A(2)(b) demands, on its proper construction those two same criteria are effectively requirements of that section too, i.e. for zero-rating to apply, it must appear now that, when next used, the property will be both occupied and used by the currently-owning charity.
28. Not only is one driven to that construction by the nature of the scheme (with its focus on occupation), submitted Mr Reed, but that construction is supported by the following:

i) Parliament could not have intended the conditions for zero-rating of unoccupied properties to be less onerous (in not including a condition of occupation by the specific charity) than the conditions imposed for reduced rating for occupied properties (which includes such a condition).

ii) The construction urged by him reflects how registered clubs are dealt with in section 45A(3).

iii) Under section 45A(2)(b), contrary to the contention of the Trust before the magistrates (and in its skeleton argument for this appeal: see paragraph 10), it is clearly not sufficient if it appears that the next occupier will be a charity, whatever its objects; and Parliament could not have intended zero-rating to be dependent upon an exercise involving the consideration of the charitable purposes of other charities that might occupy the property next, and whether there will or might be overlap between those purposes and the charitable objects of the currently-owning charity.

29. However, well and forcefully as those submissions were made, I am unable to accept them.
30. Of course, as I have explained, the historical focus of the rating regime was on occupied premises. And I accept that there are parallels in the rating regime for occupied properties, and that for unoccupied properties: indeed, I accept that, in some ways, the categories of favoured ratepayers in section 43(6) for occupied properties are reflected in those in section 45A(2) and (3) for unoccupied properties.
31. However, unoccupied premises are, by definition, not occupied; and they cannot simply be treated as if they were. The rating regimes need not be the same, and are in fact markedly different (see, e.g., Bexley Congregational Church Treasurer v Bexley London Borough Council [1972] 2 QB 222, e.g. at page 228C-E per Lord Denning MR). Some of those differences are made necessary, or at least explained, by the very fact that one regime is dealing with occupied properties and the other with unoccupied properties.
32. In particular, just because the conditions of reduced rating for charities in an occupied property are (i) occupation of the property by the charity, and (ii) use by the charity of the property wholly or mainly for its charitable purposes, it does not logically, necessarily or even rationally follow that the conditions for the zero-rating of an unoccupied property that is dependent upon forward-looking must be identical, including the condition of occupation of the property by the charity.
33. It seems to me that, with respect, the fallacy in Mr Reed's submission is that it is based upon the proposition that the scheme for rating unoccupied properties (or, alternatively, the scheme for non-business rating as a whole) is exclusively focused on occupation. It is not. When considering liability for non-business rates, for occupied properties the focus is on occupation; but the focus for unoccupied properties is not on occupation (no doubt for obvious reasons), but on ownership. That is why perhaps, where statutory provisions intend a forward-looking exercise to focus on occupation, that is made clear (see, e.g., section 48(5) of the Local Government Finance Act 1988, which applies to the discretionary relief from rating under section 47 of that Act).
34. Whilst of course this court can take a purposive approach to construction in appropriate cases where a statutory provision is ambiguous, it cannot simply speculate as to what that purpose might be and force every provision in the direction of that purpose. The starting point must be the words used by Parliament. The construction urged by Mr Reed requires the addition of, at least, the following (emphasised) words into section 45A(2)(b):

"(2) The first case is where –

(a) the ratepayer is a charity or trustees for a charity, and

(b) it appears that when next in use the hereditament will be wholly or mainly used by that charity for charitable purposes (whether of that charity or that and other charities)".

Those emphasised words are not there; and, in my judgment, there is no compelling tenet of statutory construction or other reason to warrant their inclusion. Were it to have been the Parliamentary intention to zero-rate unoccupied property only if the next occupier were the currently owning charity, then that could (and, in my judgment, would) have been made clear, as it has been elsewhere in the Act.

35. For those reasons, in my view, the nature of the scheme or context is not such as to displace the ordinary and clear meaning of the words used in section 45A(2) with some other, artificial meaning that requires substantial distortion of the statutory words used.
36. Furthermore, dealing with Mr Reed's supportive submissions in turn:

i) It is not irrational for Parliament to consider that, where unoccupied property is owned by a charity and it appears that the next use of the property will be for the charitable purposes including those purposes of the currently-owning charity, that property should be exempt from rates. Given the rate for properties occupied by charities and used for their charitable purposes is 20% of the full rate – and, to attract the 80% remission in future the next occupier will have to comply with all the requirements of section 43(5) – the scheme would appear far from irrational in principle.

I accept that a potential charitable ratepayer may, in different circumstances, have a significant burden in persuading a rating authority that a commercial scheme entered into by it and a commercial organisation involving properties that results in zero-rating is not a Furniss v Dawson sham; and/or that the next use will indeed be for the charitable purposes upon which the zero-rating depends. However, in this case, as a result of concessions and the findings of the magistrates (not now in issue), those are not difficulties faced by the Trust.

ii) It may be that clubs are dealt with differently from charities in section 45A(3) and (2) respectively, with regard to the rating of unoccupied premises owned by them; but (a) if the words that govern charities in the latter are clear, that is of no moment; and (ii) there may well be good reason for such a difference, given the peculiar legal position of charities and their charitable objects, so that there can be no presumption that Parliament intended that they be subject to similar criteria for the purposes of zero-rating.

iii) I accept that it is insufficient for the purposes of section 45A(2)(b) if it appears that the next occupier will be a charity, whatever its objects; the next use must be for charitable purposes, which include the specific charitable objects of the currently owning charity. As I understand it, Mr Hanbury conceded as much in the course of his oral submissions; but, in any event, the bracketed words in the provision can have no other construction. I also accept that that restriction appears curious: at first sight, there appears to be no good reason for such a restriction. However, in my view, the words are clear and unamibiguous; and, in any event, in so far as there is any ambiguity, any oddness that results from this construction has to be balanced against the violence to the statutory language that the construction contended for by the Council requires.

Conclusion

37. The case stated was received by the Council on 12 April 2012, so that, by CPR 52 PD 18.4, an appeal was required to be lodged by 20 April 2012. It was in fact lodged on 2 May (a delay of 13 days) because the Council erroneously thought the case stated served was only a final draft. However, given their explanation for the delay, the shortness of that delay, the absence of any real prejudice to the Trust and the fact that this appeal raises an important point of construction in relation to section 45A of the 1988 Act, I extend time so that the appeal was lodged within time.
38. However, in relation to the substance of the appeal, in my judgment, as Mr Hanbury submitted, the words of section 45A(2)(b), on their ordinary meaning, are unambiguously clear. The provision that "when next in use the hereditament will be wholly or mainly used for charitable purposes (whether of that charity or that and other charities)" means "used for the charitable objects of the owning charity, accompanied or not by other charitable purposes"; and consequently, in this case, "used for the charitable objects of the Trust, accompanied or not by other charitable purposes". The requirement for it to appear additionally that, when the property is next used, the currently-owning charity will occupy and use the property cannot be read in.
39. The question posed in the case stated is:

"Whether the justices were right to conclude that the [Trust] had established that the [Trust] was under section 45A(2) of the Local Government Act 1988 exempted from liability for each of the applications for liability orders on the basis that the occupier/or user of each of the premises the subject of the said application would be charities other than the [Trust]"

For the reasons set out above, my answer is, "Yes".

40. I stress that that answer is based upon the issues that were before the magistrates, before whom the possibility of charities sought as sub-licensees having charitable purposes entirely different from the wide charitable objects of the Trust was not in issue.
41. On that basis, the magistrates' approach on the issue raised in this appeal was correct, they did not err in law, and this appeal is consequently dismissed.