Scottish Court of Session Decisions

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URL: http://www.bailii.org/scot/cases/ScotCS/2019/2019_CSIH_25.html
Cite as: [2019] CSIH 25, 2019 SLT 561, 2019 SC 512, 2019 GWD 14-224, [2019] RA 391, [2019] ScotCS CSIH_25

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LANDS VALUATION APPEAL COURT

Lord Justice Clerk

Lord Malcolm

Lord Doherty

[2019] CSIH 25

XA88/18

OPINION OF LADY DORRIAN, the LORD JUSTICE CLERK

in the Appeal

THE ASSESSOR FOR TAYSIDE VALUATION JOINT BOARD

Appellant

against

OLD FASKALLY FARMING CO LTD and OTHERS

Respondent

Appellant: Stuart QC; Clyde & Co (Scotland) LLP

Respondent: Clarke QC; Davidson Chalmers LLP

24 April 2019

[1] I have seen the opinion prepared by Lord Doherty, and I am in complete agreement

with it. In an earlier appeal the committee had determined that the fact that certain plant

and machinery was deemed non rateable under Class 1 meant that they did not require to

consider that plant in relation to any other class. The court held that this was wrong and

that a sequential approach was required. Plant might be non-rateable under Class 1 but yet

be rateable under some other category. Specifically, for the purposes of the current appeal,

items may be non-rateable under Class 1 but nevertheless be rateable under Class 4.

Page 2 ⇓

[2] The items which may be included in Class 4 are set out in tables 3 and 4. They

include dams; fixed cranes and gantries; conduits and ducts; foundations; supports; turbines

and generators; chambers and vessels; pits, beds and bays; and filters and separators. In

each case the items are excepted if they are neither a building or structure nor in the nature

of a building or structure. Accordingly, an item may be non-rateable in Class 1 but rateable

in Class 4 on the basis that it is, or is in the nature of, a building or a structure.

[3] On their reconsideration of the case, the committee recognised that a sequential

approach was required. They stated that they required to address whether individual

components of the penstock, non-rateable under Class 1, might nevertheless be rateable

under Class 4 as being, or being in the nature of, a building or structure. On that basis, they

considered that the dams and intake chambers were rateable. This approach should have

been followed through by examining the individual components of the pipeline, including

the associated thrustblocks, reinforced floors, foundations and so on. However, the

committee did not do that. Rather they considered the matter of rateability of these items to

be determined solely by their assessment of what constituted a “pipeline”. They considered

that if they concluded that the “pipeline” included the associated civil engineering works,

and the like, that was determinative of non-rateability, since parties were agreed that the

“pipeline” was non-rateable. Such an approach failed to recognise the limit of the

concession made by the assessor. The concession was only that the pipe itself was non-

rateable; there remained a dispute as to all other components, which required that the

committee examine these individually. The reasoning of the committee seems to have been

(i) the parties agree that the “pipeline” is exempt; therefore (ii) if the committee consider that

the “pipeline” is as defined by the ratepayers, it is exempt, and no examination of individual

Page 3 ⇓

components need be carried out. That this was their approach is clear from para 15 of their

amended decision and reasons:

“15. The Committee considers that the definition of a pipeline is crucial to its findings

since both parties are agreed that pipelines are exempt from rating.”

Accordingly, they considered the “pipeline” only as a single entity and did not consider

whether any of the component parts were of a nature such as would fall within Class 4. For

the reasons given in more detail by Lord Doherty I am of the view that this was an error in

law. I have now had the opportunity to read the opinion of Lord Malcolm. I regret that I

cannot agree with the interpretation of the committee’s reasoning which is set out in

paragraph 10 of that opinion. I therefore have the misfortune to disagree with your

Lordship as to disposal of this appeal.

[4] As to the rateable split, I also agree with Lord Doherty. Given that the ratepayers

argument that a rateable/non-rateable asset split of 25/75 per cent was appropriate reflected

their position that the only rateable items were the land, wayleaves, water rights and the

shell of the turbine house, I cannot understand how the same split can be justified when the

committee considered that the rateable items extended further, and included the dams and

intake chambers.

Page 4 ⇓

LANDS VALUATION APPEAL COURT

Lord Justice Clerk

Lord Malcolm

Lord Doherty

[2019] CSIH 25

XA88/18

OPINION OF LORD MALCOLM

in the Appeal

THE ASSESSOR FOR TAYSIDE VALUATION JOINT BOARD

Appellant

against

OLD FASKALLY FARMING CO LTD and OTHERS

Respondent

Appellant: Stuart QC; Clyde & Co (Scotland) LLP

Respondent: Clarke QC; Davidson Chalmers LLP

24 April 2019

[5] The assessor’s grounds of appeal contend that the committee’s decision regarding

the thrustblocks, civils, and tailraces is challengeable because (a) it did not follow the

sequential approach to the regulations, and (b) in any event the decision was perverse.

Whether an item of plant and machinery is a building, a structure, or in the nature of a

building or a structure, are “substantially matters of fact” with which the court will be

“extremely slow to interfere”. An appeal can proceed on the basis that the decision is

founded upon an error of law, but failing that, “if the conclusions were reasonably possible

Page 5 ⇓

conclusions on the facts and evidence” the court will accept them as final. “In large measure

the questions involved are questions of degree; and, as such, essentially matters for the final

determination of the fact-finding tribunals.” The quotations are from the judgment of Lord

Evershed MR in BP Refinery (Kent) Limited v Walker [1957] 2 QB 305, and are wholly

consistent with the approach of the court north of the border to decisions of specialist

tribunals.

“… judges … ought not to assume the functions which by statute are conferred upon

the assessor, and upon the local Court of review.” (Lord Lee, McJannet v Assessor for

Stirling (1882) 10 R 32 at page 33)

[6] As to the allegation of perversity, if otherwise correct in law, the committee was

entitled to reach the decision that the thrustblocks, civils, etc were not in the nature of

structures. The assessor did not treat the pipeline, as he defined it, as a structure or in the

nature of a structure within the meaning of class 4, so it is understandable that the

committee came to the same view in respect of its accessory parts. It is equally

understandable that a separate and different view was taken as to the dams and intake

chambers. Paragraph 13 of the assessor’s note of argument states that thrustblocks, civils,

etc are “eminently capable” of being rateable in terms of class 4. Such a proposition is not

capable of supporting an allegation of perversity.

[7] More can be said for the contention that the committee failed to follow the required

sequential approach to the regulations, not least since it has found favour with your

Ladyship and your Lordship. It does involve the committee having failed to learn the lesson

handed down in the court’s first decision, something which I find difficult to countenance,

particularly since it is apparent from the second stated case that the committee asked itself

the correct questions. It addressed classes 2 and 3 - the challenges thereanent were not

pressed at the appeal hearing. As to class 4, reference can be made to findings 17-20 at

Page 6 ⇓

page 11 of the second stated case. The powerhouses were rateable because they are

buildings. The committee then asked itself – which component parts of the penstock

(pipeline) are rateable under class 4 as being in the nature of buildings or structures? The

only items in this category were at the head of the schemes, primarily the dams and intake

chambers.

[8] Finding 22 has contributed to the uncertainty.

“The committee also considered that the definition of a pipeline was crucial to its

findings since both parties agreed that the pipeline is exempt from rating.”

The background is that the assessor presented a receipts and expenditure scheme of

valuation based on a rateable/non-rateable split analysis as to the costs incurred – see the

assessor’s production 11. It was explained that the pipelines, narrowly defined as the high

specification pipes themselves, divorced from everything else which supported their

operation, for example, the thrustblocks and civils, were treated as non-rateable; while the

thrustblocks, etc fell on the other side of the line. No clear reason was given for singling out

the pipes themselves in this way, nor for why the assessor’s case was put forward on the

basis that the pipelines, as so defined, were non-rateable in terms of the regulations. It

followed that a pipeline seen as a whole, namely including the pipe itself and its associated

elements, such as the thrustblocks, could not be treated as rateable as being in the nature of a

structure, and no argument to that effect was presented. In BP Refinery Lord Denning

observed (pages 329/330) that pipelines, including buried pipelines, were, or could be, in the

nature of structures. However, given the assessor’s somewhat convoluted approach to this

aspect of the case, this issue did not arise for consideration. For myself, I can understand the

importance given by the committee to the issue of the proper definition of the pipeline, or

penstock as it was sometimes designed.

Page 7 ⇓

[9] The committee rejected the contention that the pipelines should be defined so

narrowly.

“The committee is persuaded by the view expressed by the expert witnesses and

accepts the appellants’ definition of a pipeline.” (paragraph 18, page 17 of the

second stated case)

The committee asked itself whether the thrustblocks (which include those under the floors of

the powerhouses), civils and tailraces are part of the pipelines, answering in the affirmative.

As to the thrustblocks, they are “an integral part of the pipeline which would otherwise not

be able to perform its function …“. (paragraph 17, page 17)

[10] The majority view of the court is that the committee’s reasoning stopped there – the

committee failing to address whether, nonetheless, these items were in the nature of

structures in terms of class 4 of the regulations. It is also suggested that if the committee did

address this issue, it nonetheless erred in that it proceeded on the basis that an integral part

of a pipeline could never be rateable under class 4. However, in the overall context of the

committee’s explanation of what it was doing, I understand it to be saying that, unlike the

dams and intake chambers, the thrustblocks, civils, etc were neither individually nor

collectively in the nature of structures, but were accessory parts of the pipelines. Their

integration into the pipelines, which the assessor was treating as non-rateable, was regarded

as important in the committee’s classification of the disputed items. This is supported by

what is said at paragraphs 14 and 15 on page 17 of the second stated case.

“14. The committee then considered what component parts of the penstock fall to

be rateable under class 4 as being in the nature of buildings or structures and in

particular what constitutes a pipeline.

15. The committee considers that the definition of a pipeline is crucial to its

findings since both parties are agreed that pipelines are exempt from rating”.

Page 8 ⇓

The implication may be that if the thrustblocks stood alone they might be treated differently.

However, to my mind, it is reading too much into the decision and the reasoning to assume

that the committee shut its mind to the possibility that something which is physically and

functionally integrated with a pipeline could never be in the nature of a building or a

structure. I can understand that some may disagree with the committee’s views, as plainly

the assessor does, but, if they amount to an error, it is an error of the kind local valuation

committees are entitled to make (in the sense that it is not open to legal challenge), otherwise

this court will see many more appeals against their decisions.

[11] Putting the matter in another way, the committee did follow the sequential approach

to the classes in the regulations. It applied its mind to the question of the rateability under

class 4 of the component parts of the schemes, including the thrustblocks, civils, etc. It

identified only the powerhouses and the specified items at the head of the schemes as

rateable plant and machinery in terms of class 4. These were reasonably possible

conclusions on the facts and evidence. The disagreement is with the answer to the question,

not the process; the answer being that the thrustblocks, etc are not rateable under class 4. If

the committee erred, it is on a matter of fact, or perhaps of fact and degree, but not law. The

result is that I would reject both grounds of appeal mentioned earlier.

[12] There remains the issue of the 25/75% split. The majority view is that, even if the

committee acted properly in respect of its decision on the thrustblocks, etc, given its decision

that the dams and intake chambers were rateable, 25% rateability must be too low.

[13] The parties were in dispute on (a) the proper approach to valuation (comparative

versus receipts and expenditure), and (b) if receipts and expenditure was accepted, how

much of the plant and machinery was rateable in terms of the regulations. The assessor

proposed a “pragmatic” 50/50 split. The ratepayers argued that more or less all the plant

Page 9 ⇓

and machinery was non-rateable, but observed that if 25% of the plant and machinery was

to be treated as rateable and this was applied to the assessor’s valuation calculation (his

production 11), the ultimate outcome would be similar to that based on their rental

comparisons.

[14] In its first decision the committee adopted the comparative approach. However, it

indicated that it was not attracted to the ratepayer’s evidence on a 25/75% split given that

there was no breakdown as to which items of plant and machinery were and were not

rateable. The absence of such was unsurprising. The ratepayers did not purport to provide

such a breakdown, nor assert that on a receipts and expenditure approach 25% rateability

was the correct split. The point was presented simply in the context of it producing a result

similar to the ratepayers’ preferred approach. The ratepayers insisted that virtually none of

the plant and machinery was rateable.

[15] Given the more recent rejection of the comparative approach, any relevance of the

similarity between the evidence on comparisons and a 25/75% split falls away. Once the

committee adopted the receipts and expenditure approach, the question of the proper split

was no longer academic and a decision required to be made. Neither side led further

evidence. The committee concluded that various items at the head of the schemes,

principally the dams and intake chambers, were rateable. It rejected the assessor’s evidence

that other items should be treated as rateable. It is suggested that this means that

necessarily the rateability element must be higher than 25%, and this because the ratepayer’s

evidence was the only evidence before the committee as to a 25/75% split, and must have

proceeded on the basis that the dams and intake chambers were not rateable.

[16] In my respectful opinion this analysis is flawed. It assumes that the ratepayers’

evidence as to a split was based on a reasoned breakdown of rateable and non-rateable plant

Page 10 ⇓

and machinery. It assumes that the committee has accepted evidence that, absent the dams

and intake chambers, a rateability split of 25/75% is appropriate. To my mind, both

assumptions are unfounded. The committee has now adopted a 25/75% split, but, so far as I

can identify, there is no sound basis for the view that this involved, or should involve,

adding the only rateable items of the schemes identified by the committee to the 25%

rateability figure mentioned on behalf of the ratepayers.

[17] On the contrary, in the light of its second decision, I understand the committee to

have carried out its own valuation exercise based upon its view as to an appropriate split

taking into account its decision as to which items of plant and machinery are rateable and

which are non-rateable. Reference can be made to finding 27 on page 12 and paragraphs

25/26 on page 18. This is a purely valuation decision which is within its jurisdiction, and

with which the court cannot, or at any rate should not, interfere. It is true that the split is the

same as that which the ratepayers’ witness noted replicated the outcome of their

comparisons based valuation, and this may explain why some of the language used by the

committee has been interpreted in the manner proposed by your Lordship; but I remain of

the view that it does not follow that the committee has failed to take into account that the

dams and intake chambers are rateable.

[18] For these reasons I would refuse the appeal.

Page 11 ⇓

LANDS VALUATION APPEAL COURT

Lord Justice Clerk

Lord Malcolm

Lord Doherty

[2019] CSIH 25

XA88/18

OPINION OF LORD DOHERTY

in the Appeal

THE ASSESSOR FOR TAYSIDE VALUATION JOINT BOARD

Appellants

against

OLD FASKALLY FARMING CO LTD and OTHERS

Respondents

Appellants: Stuart QC; Clyde & Co (Scotland) LLP

Respondents: Clarke QC; Davidson Chalmers LLP

24 April 2019

Introduction

[19] The subjects of these appeals are six “run of the river” hydro-electric schemes. Five

of the appeals (Old Faskally (Kinnaird Burn), Acharn, Tombuie, Camserney, and Monzie)

are against the 2010 revaluation entries. The sixth (Keltneyburn) relates to a new entry made

after the 2010 revaluation during the currency of that valuation roll. Before the valuation

appeal committee (“the committee”) the dispute between the parties in each case concerned

Page 12 ⇓

the extent to which plant and machinery was rateable and should be reflected in the

valuation of the subjects.

The relevant statutory provisions

[20] Section 42 of the Lands Valuation (Scotland) Act 1854 (as amended) provides:

“42. Interpretation clause

.... the expression ‘lands and heritages’ shall extend to and include all lands, houses,

shootings, and deer forests, fishings, woods, copse, and underwood from which

revenue is actually derived, ferries, piers, harbours, quays, wharfs, docks, canals,

railways, mines, minerals, quarries, coalworks, waterworks, limeworks, brickworks,

ironworks, gasworks, factories, and all buildings and pertinents thereof, and such class

or classes of plant or machinery in or on any lands and heritages as may be prescribed

by the Secretary of State by regulations ...”

Reg 2 of, and the Schedule to, the Valuation for Rating (Plant and Machinery)(Scotland)

Regulations 2000 (SSI 2000/58)(as amended) (“the 2000 Regulations”) provide:

“2.

Prescribed classes of plant and machinery

The classes of plant and machinery set out in the Schedule to these Regulations are

hereby prescribed for the purposes of the definition of “lands and heritages” in section

42 of the Lands Valuation (Scotland) Act 1854.

...

SCHEDULE

PRESCRIBED CLASSES OF PLANT AND MACHINERY

CLASS 1

Plant and machinery (... excluding excepted plant and machinery) specified in Table 1

below (together with any of the appliances and structures accessory to such plant or

machinery and specified in the List of Accessories set out below which is used or

intended to be used mainly or exclusively in connection with the generation, storage,

primary transformation of power or main transmission of power in or on the lands

and heritages.

In this Class–

Page 13 ⇓

(a)

‘excepted plant and machinery’ means plant and machinery on the lands and

heritages used or intended to be used for generation, storage, transformation or

transmission of power where either–

(i) the power is mainly or exclusively for distribution for sale to consumers; ...

...

TABLE 1

...

(g)

Water wheels; water turbines; rams; governor engines; penstocks; spillways;

surge tanks; conduits; flumes; sluice gates.

...

LIST OF ACCESSORIES

...

Any of the following plant and machinery which is used or intended to be

used mainly or exclusively as part of or in connection with or as an accessory to any of

the plant and machinery falling within Class 1 or 2:-

(a)

foundations, settings, gantries, supports, platforms and stagings for plant and

machinery;

...

(e)

pipes, ducts, valves, traps, separators, filters, coolers, screens, purifying and

other treatment apparatus, evaporators, tanks, exhaust boxes and silencers, washers,

scrubbers, condensers, air heaters and air saturators;

...

CLASS 3

…

Except to the extent that they have microgeneration capacity, the following items:–

...

(g)

a pipe-line, that is to say, a pipe or system of pipes for the conveyance of any

thing, not being–

(i) a drain or sewer; or

(ii) a pipe-line which forms part of the equipment of, and is wholly situated

within, relevant premises, together with any relevant equipment occupied

with the pipe-line;...

Page 14 ⇓

...

‘relevant equipment’ means–

(i) foundations, supports, settings, chambers, manholes, pipe gantries, pipe

bridges, conduits, pits and ducts;

...

CLASS 4

The items specified in Tables 3 and 4 below, except–

(a)

any such item which is not, and is not in the nature of, a building or structure;

...

TABLE 3

...

Dams.

...

Flumes, conduits and ducts.

Foundations, settings, fixed gantries, supports, walkways, stairways, handrails,

catwalks, stages, staithes and platforms.

...

Pits, beds and bays.

...

Turbines and generators.

...

TABLE 4

...

Chambers and vessels.

...

Filters and separators.

...”

Page 15 ⇓

The hearing

[21] At the hearing before the committee the ratepayers maintained that all of the plant

and machinery at the subjects was non-rateable. Their position was that in each case the

only lands and heritages were the site of the scheme, wayleaves (where they existed), water

extraction rights, and the shell of the turbine house. Everything else, including the penstock,

turbines, foundations (including the foundations of the turbine house), and civil engineering

works, were non-rateable. While in their view Class 1, taken with the accessories listed in

the Table of Accessories, was wide enough to include all of those items in some

circumstances, in the case of each of the appeal subjects all of the relevant plant and

machinery was excepted in terms of paragraph (a)(i). Since they were excepted from

Class 1, it followed (the argument ran) that they could not be rateable by virtue of Classes 2,

3 or 4. As all that required to be valued was the site, water rights, any wayleaves, and the

shell of the turbine house, it was not necessary to value the subjects on the revenue

principle. There was rental evidence of lets of sites and water extraction rights, and the

shells of the turbine houses could be valued by adding 10% to those rental values. The

comparative principle could and should be used. On the other hand, if the subjects ought to

be valued on the revenue principle approximately the same results as the ratepayers’

comparative principle valuations could be obtained by treating 75% of the assets as non-

rateable assets provided by the hypothetical tenant and 25% as rateable assets provided by

the hypothetical landlord.

[22] The Assessor maintained that the subjects ought to be valued on the revenue

principle, and that all similar subjects in Scotland had been valued on that basis. Such

limited rental evidence as there was related only to site rents, or rents for water extraction,

Page 16 ⇓

or wayleaves, and did not reflect rateable plant and machinery. Moreover, in several cases

the rents were between connected parties. At the time the entries were made in the roll the

Assessor did not carry out a survey of each subject in order to determine the plant and

machinery which was rateable. He proceeded on the basis that a reasonable approach

would be to treat 50% of the assets of each scheme as being rateable and 50% of the assets as

being non-rateable. That apportionment had been recommended by the Lanarkshire

Assessor and it had been based on an analysis of development costs relating to two subjects,

Twin Lochs and Glen Kinglas. The Lanarkshire Assessor had responsibility for entering

electricity generation subjects in the valuation roll for South Lanarkshire in terms of articles

2 and 3 of the Non-Domestic Rating (Valuation of Utilities) (Scotland) Order 2005 where

they would otherwise have been treated as justifying separate entries in two or more

valuation rolls; and in practice he also took a lead role in providing guidance to Assessors

on the valuation of other electricity generation subjects, and in the preparation of the SAA

Public Utilities Committee Practice Note 3 on Valuation of Conventional Hydro-Electricity

Generators (23 June 2011)). In the Twin Lochs and Glen Kinglas costs analysis turbines,

generators and pipelines had been treated as non-rateable. Weirs and dams, thrust blocks,

civil engineering works, turbine houses (including their foundations and chambers under

them), and tail races had been treated as rateable. Both witnesses who gave evidence for the

Assessor were of the view that treating 50% of the assets of a scheme as non-rateable was

generous to the ratepayers, and that it could have been argued that a significantly higher

proportion of the assets were rateable. The Assessor’s position was that even if, contrary to

his view, plant and machinery was not rateable under Class 1, much of it was rateable under

the other classes, in particular under Class 4.

Page 17 ⇓

The committee’s first decision

[23] The committee accepted the ratepayers’ comparative principle valuations. In its

view only the sites, wayleaves, water rights and the shells of the turbine houses were

rateable. Everything else fell within the paragraph (a)(i) exception to Class 1. Since those

assets were excepted from Class 1, that was determinative of their non-rateability. It was

not necessary or appropriate to go on to consider whether any of them were rateable in

terms of Classes 2, 3 or 4.

The first appeal

[24] In Assessor for Tayside Valuation Joint Board v Old Faskally Farming Co Ltd 2016 SC 447,

2016 SLT 333, [2016] RA 273, this court held that the committee erred in its interpretation of

the 2000 Regulations. On a proper construction of the Regulations a sequential approach to

Classes 1 to 4 was required. If plant and machinery was not lands and heritages under a

particular class it was still necessary to consider whether it qualified as lands and heritages

by virtue of any of the remaining classes. The court allowed the Assessor’s appeals and

remitted the cases to the committee to enable it to reconsider them using the correct

approach.

[25] At paragraphs 3 and 4 of her opinion Lady Dorrian explained, under reference to the

stated case, how the committee had approached matters:

“[3] The committee's interpretation of the 2000 Regulations meant that, in general,

the plant and machinery was not rateable. In reaching that conclusion the committee

rejected the assessor's argument that all civil engineering works, including dams,

intake chambers, supports, thrust blocks, ducts or chambers under a turbine and the

like should all be treated as rateable for the purpose of the Regulations. In

consequence the committee clearly considered that it was not necessary for them to

examine in detail the extent to which the appeal subjects might differ from each other

or from the comparator rental subjects. The committee summarised its approach as

follows (para 52):

Page 18 ⇓

‘If the plant and machinery is excluded from rating, all that remains to be

valued is the rent for the land and the water extraction rights and the shell

structure of the turbine building.’

The committee determined that the turbine building required to be assessed as a ‘shell’

for this purpose (para 63):

‘The turbine building is a shell for rating purposes. Most of the plant and

equipment and their accessories within the turbine building are non-rateable.’

Since it concluded that the turbine building was merely a shell, the committee

accepted that its rateability should be assessed by applying a small uplift to the rental

value of the subjects based on turnover. As to the remaining issue of the valuation of

the right to extract water and the use of the land, the committee noted that these

matters were included in the comparison evidence (para 51):

‘In the rental comparisons provided by the respondents, all plant and

machinery is excluded from value in fixing rents. The rent is for the right to

extract water and for the use of the land.’

The committee considered that the comparison evidence showed a consistent average

level of nine per cent of turnover for the value of the land and the water extraction

rights. In each case they applied an upward adjustment of ten per cent of the rental

figure to reflect the value of the turbine building.

[4]

From this it will be seen that the proper approach to be taken to plant and

machinery was central to the committee's whole approach, and in particular to the

questions: (a) whether the assessor's approach should be rejected; (b) whether the

comparison evidence was sufficient; and (c) whether the turbine station was effectively

a shell...”

The committee’s second decision

[26] As a result of the remit the committee reconvened. It reconsidered the evidence

which it had heard, but it did not ask the parties to provide any further submissions. It

adhered to its previous view that all of the plant and machinery fell within the description of

“penstock” in Class 1, but that it was “excepted plant and machinery” in terms of paragraph

(a)(i) and therefore was excluded from Class 1. It decided (i) that dams and intake chambers

at each of the subjects were rateable in terms of Class 4; (ii) that, in light of the fact that some

plant and machinery was rateable, valuation should be on the receipts and expenditure

Page 19 ⇓

(revenue) basis rather than the comparative basis; (iii) that the split between rateable and

non-rateable assets should be 25%/75% rather than 50%/50%.

[27] The committee made inter alia the following findings in fact:

“17. ... The Committee also accepted the evidence from the [ratepayers] that

Classes 2 and 3 did not apply but, having re-examined Class 4, the Committee

concluded that certain elements, whilst exempt from Class 1, required to be re-

introduced under Class 4.

...

19. The Committee also accepted ... that any parts of the penstock which are

deemed to be a building or structure or in the nature of a building or structure may

fall to be rateable under Class 4. The [Assessor] and the [Ratepayers] agreed that the

only building within the subjects, namely the turbine house, was rateable.

20. The Committee then considered what component parts of the penstock fall to

be rateable under Class 4 as being in the nature of buildings and structures. The

Committee considered that these items were at the head of the structure, located

between the running water at the start of the pipeline, primarily dams and intake

chambers.

...

22. The Committee also considered that the definition of a pipeline was crucial to

its findings since both parties agreed that the pipeline is exempt from rating.”

[28] In its amended decision and reasons the committee stated:

“14. The Committee ... considered what component parts of the penstock fall to

be rateable under Class 4 as being in the nature of buildings or structures and what in

particular constitutes a pipeline.

15.

The Committee considers that the definition of a pipeline is crucial to its

findings since both parties are agreed that pipelines are exempt from rating.

16.

The Assessors’ evidence is that the pipeline is only the pipe itself and not the

thrustblocks which support the pipe, or the tailrace, which is part of the pipe, or the

civil engineering works carried out to produce the completed pipeline.

17.

The Appellants’ argument, as put forward by the expert witnesses, is that the

pipeline includes the thrustblocks, civils and tailrace. The thrustblocks are considered

an integral part of the pipeline which would otherwise not be able to perform its

function as a pipeline for the purpose of carrying the water from start to finish.

Page 20 ⇓

18.

The Committee is persuaded by the views expressed by the expert witnesses

and accepts the Appellants’ definition of a pipeline.”

After noting the parties’ different approaches to the appropriate split between rateable and

non-rateable assets it continued:

“25. The Committee has looked again at both approaches, and having accepted

the Appellants’ definition of a pipeline as being non rateable, the Committee

concludes that a 25/75 rateable/non-rateable apportionment is a more reliable and

appropriate split to use in the otherwise agreed scheme of valuation.”

The second appeal

[29] The Assessor appealed against the committee’s second decision on several grounds.

Some of those grounds fell away during the course of the hearing before us, and in my view

it is unnecessary to say much about them. The argument that the committee erred in law in

concluding that the penstock started at the water intake and finished where the water

returned to the river was one such ground. It had no practical significance, as Mr Stuart

made clear that he was not maintaining that any plant and machinery was rateable by

reason of Class 1. Similarly, the argument that the committee erred in concluding that there

was no plant and machinery which fell within Classes 2 or 3 did not take Mr Stuart

anywhere. While he indicated that there are small quantities of Class 2 service equipment in

the turbine houses, he did not maintain that that would make any material difference to the

valuations. Moreover, while before the committee the Assessor had suggested that the

pipelines themselves might arguably be rateable under Class 3(g), the Twin Lochs/Glen

Kinglas costs analysis upon which he founded treated pipelines as being non-rateable and

that had been the basis of the rateable/non-rateable asset split adopted in the valuations. In

those circumstances whether the pipeline itself and any associated “relevant equipment”

Page 21 ⇓

were lands and heritages in terms of class 3(g) was not a live issue before the committee, and

it is not a live issue before us.

[30] The 2000 Regulations prescribe four classes of plant and machinery as lands and

heritages. If an item of plant and machinery satisfies the requirements of one or other of the

prescribed classes, it is lands and heritages. The approach is sequential and inclusive. An

item which is not prescribed as lands and heritages by Class 1 may nonetheless be

prescribed as lands and heritages by Class 2, or Class 3, or Class 4. Non-inclusion under one

class does not stamp an item as non-rateable - it merely means that it is not prescribed as

lands and heritages under that class.

[31] The central issue here is whether, and if so to what extent, the committee considered

if items of plant and machinery were lands and heritages by virtue of Class 4.

[32] In my view it is clear that the committee considered whether the dams and intake

chambers at the subjects fell within that class, and that it concluded that they did. However,

in my opinion the committee did not go on to consider whether any of the other parts of the

plant and machinery were rateable in terms of Class 4. It simply treated everything else

(including thrustblocks, civils, foundations, most of the reinforced floor of the turbine

houses, the chambers under that floor, and the tail races) as being part of the pipeline. It

reasoned that none of it was lands and heritages because the parties were agreed that the

pipeline was not rateable. In my view that was not a true reflection of the Assessor’s

position.

[33] It was, of course, fair to say that the Assessor’s approach treated the pipeline itself as

being non-rateable; but it was wrong to say that he accepted that the thrustblocks, civils,

foundations, reinforced floors, chambers and tailraces were part of the pipeline and were

non-rateable. On the contrary, his clear position was that all of those items were rateable.

Page 22 ⇓

Whether or not it was correct to characterise the pipeline in the broad way in which the

committee did, it still required to consider whether any of the parts which the Assessor

maintained were rateable were indeed lands and heritages by virtue of Class 4. The

committee ought to have considered whether the disputed items fell within any of the

relevant Class 4 descriptions (Flumes, conduits and ducts; or Foundations, settings, fixed

gantries, supports, walkways, stairways, handrails, catwalks, stages, staithes and platforms;

or Chambers and vessels; or Filters and separators); and, if so, whether the item was a

building or structure or in the nature of a building or structure. Guidance on the latter

question is provided in Cardiff Rating Authority and Cardiff Assessment Committee v Guest Keen

Baldwin’s Iron and Steel Company Limited [1949] 1 KB 385 (“Cardiff Rating”) and BP Refinery

(Kent) Ltd v Walker (Valuation Officer) [1957] 2 QB 305 (“BP Refinery (Kent) Ltd”).

[34] In Cardiff Rating it was common ground that tilting furnaces on rollers came within

the description “furnaces” in Class 4 (of the Schedule to Plant and Machinery (Valuation for

Rating) Order 1927), and that overhead gas mains (which rested on, but were not attached

to, steel vertical supports) came within “flues” and “flumes and conduits”. The Court of

Appeal held that the judge at first instance had misdirected himself in holding that they

were not structures or in the nature of structures because they could be moved. It concluded

that the tilting ovens and the overhead gas mains were both in the nature of structures. A

structure and something in the nature of a structure were generally likely to be of substantial

size and to have some degree of permanence in relation to the hereditament. In BP Refinery

(Kent) Ltd a topping unit and a large and elaborate boiler at an oil refinery were not rateable

as single entities under Classes 1 to 4, but component parts of each of them were held to be

rateable under Class 4. In relation to the relevant components of the boiler Lord Evershed

MR observed (at p. 326):

Page 23 ⇓

“The items are, severally, parts of a plant which fall within the descriptions in class 4

and are structures or in the nature of structures. They are, therefore, individually

rateable, although the plant as a single unit is not.”

[35] In my opinion the committee failed to consider whether any of the component parts

of what it held to be the pipeline were lands and heritages prescribed by Class 4.

[36] Even if, contrary to my view, the committee did consider whether those component

parts were rateable in terms of Class 4, I would still be of the view that it misdirected itself.

Its findings and its reasoning strongly suggest that it proceeded on the basis that the

component parts could not be rateable under Class 4 if they were integrated with the

pipeline (which it treated as being non-rateable). Rather than approach matters in the way

which it did, the committee required to consider whether any of the component parts (i) fell

within one or other of the relevant Class 4 categories; and (ii) were a building or structure or

in the nature of a building or structure. Those requirements could be satisfied even if the

committee took the view that the component parts were physically and functionally

integrated with the pipeline. Satisfaction of the Class 4 requirements, and being physically

and functionally integrated with the pipeline, are not mutually inconsistent states of affairs.

[37] In BP Refinery (Kent) Ltd Denning LJ noted that the boiler could not be rated as such,

but he remarked (at p. 330):

“But I see no reason why the several parts of a process boiler should not be rated

under class 4. They are all structures or in the nature of structures, and are not less so

because they are attached to other structures which are not rateable.”

The words in italics represent my emphasis. A similar point was made by Jenkins J in

Cardiff Rating (at p. 404) when he noted that foundations etc. in the Class 4 entry “include

the foundations of non-rateable things”. These observations recognise that something may

be a structure or in the nature of a structure in its own right even though it may also be an

integral component part of a larger item (which item may itself also be a structure or in the

Page 24 ⇓

nature of a structure). That is so even though the larger item may not be rateable as such.

Foundations, for example, may be a component part of, or functionally integrated with, a

non-rateable item, but they may still fall within the relevant Class 4 category and may still

be a structure or in the nature of a structure.

[38] In my opinion the committee did not examine whether component parts of the

pipeline were rateable by reason of Class 4. That was an error of law. If, contrary to my

opinion, it did, I think it erred in law by proceeding on the basis that anything which was an

integral part of the pipeline could not be rateable by virtue of Class 4.

[39] I turn then to consider the split which the committee arrived at. Of course, if when it

comes to re-examine rateability of the component parts of the pipeline the committee finds

that one (or more) of them is (are) rateable, that is likely to affect the rateable/non-rateable

asset split. However, even if after that re-examination the committee were to conclude that

none of the relevant items are rateable, in my view its 25%/75% split cannot stand. The basis

upon which that split was put forward by the ratepayers’ witnesses was that what was

rateable was the land, wayleaves, water rights, and the shell of the turbine house, and that

all other assets were non-rateable. The 25%/75% split was not a fall-back position involving

acceptance that some items of plant and machinery which the Assessor maintained were

rateable were indeed rateable. It was simply an alternative way of arriving at the same

answer as the ratepayers’ comparative principle valuations, but using the receipts and

expenditure method. That was the only evidence before the committee which supported the

25%/75% split. However, the committee did not accept the premise upon which the

ratepayers’ evidence was based (i.e. that all of the plant and machinery other than the shell

of the turbine house was non-rateable). It found that the dams and intake chambers were

rateable. Accordingly, even if, contrary to my view, the committee properly considered

Page 25 ⇓

whether the relevant component parts were rateable, the rateable assets ought to be higher

than 25% because that percentage reflects only the land, wayleaves, water rights, and the

shell of the turbine house.

[40] The upshot is that a remit is necessary so that the committee can address correctly,

with the benefit of the court’s guidance, (i) the Class 4 rateability of each of the relevant

component parts; and (ii) the appropriate rateable/non-rateable asset split.

[41] I am conscious that a very considerable period has elapsed since evidence was led

before the committee. Finality is an important consideration. However, I also think it is

important that these appeals are resolved correctly, and in my opinion a second remit to the

committee is necessary in order to achieve that. The outcome of the appeals is likely to have

a bearing not only on these subjects, but also on other cases where appeals have been lodged

on the basis of a material change of circumstances (with the committees’ decision here being

founded on as a relevant decision (Local Government (Scotland) Act 1975, s. 3(4) and

s. 37(1)). These cases may also be relied upon as a precedent in future appeals.

[42] Since preparing this opinion in draft I have had the advantage of reading your

Lordship’s opinion. I have the misfortune to find myself in respectful disagreement with it.

I do not disagree with anything in paragraph [5]. Nor do I disagree with the proposition

that the court should not interfere with a decision of a committee if it has not erred in law

and if its decision is capable of being supported on the evidence. Where I part company is

that in my opinion it is clear from the stated case that the committee has erred in law, for the

reasons set out above. In particular, I am satisfied that the committee did not consider

whether the component parts which it associated with the pipeline qualified as lands and

heritages by virtue of Class 4.

Page 26 ⇓

Disposal

[43] I move the court to allow the Assessor’s appeals to the extent described in this

opinion; to remit the cases to the committee for it to reconsider the evidence in light of the

court’s decision, and to determine in each case (i) which, if any, parts of the plant and

machinery from the end of the intake chamber to the end of the tailrace are rateable in terms

of Class 4; (ii) the appropriate rateable/non-rateable asset split for each of the appeal subjects

having regard to the rateability of dams, intake chambers, turbine houses and any other

plant and machinery which it finds to be rateable in terms of Class 4.