UPPER TRIBUNAL (LANDS CHAMBER)

UT Neutral citation number: [2014] UKUT 159 (LC)

UTLC Case Number: RA/1/2013

TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

RATING – Agricultural exemption –Local Government Finance Act 1988, s.51, Schedule 5, paragraph 1 – paragraph 2 (1)(d), meaning of agricultural land – whether hereditament consisting of buildings ‘anything which consists of a market garden, nursery ground’ - paragraph 3(b), meaning of agricultural building – whether hereditament ‘is or forms part of a market garden’ – appeal succeeds

 

IN THE MATTER OF AN APPEAL FROM A DECISION OF THE VALUATION TRIBUNAL FOR ENGLAND DATED 11 DECEMBER 2012

 

BETWEEN MR J. REEVES (VALUATION OFFICER)

Appellant

and

 

TUNNEL TECH LIMITED Respondent

re: Land at The Old Airfield, Winchester Street, Leckford, Stockbridge, Hampshire, SO20 6DD.

 

Before: HH David Mole QC (sitting as a Deputy Judge of the Upper Tribunal)

 

Sitting at: 43-45 Bedford Square, London WC1B 3AS

on 

10-11 March 2014

 

Sarabjit Singh  instructed by the solicitor to HMRC, for the appellant VO

Gordon Nardell QC and James Burton, instructed by Michelmores LLP, solicitors of Exeter EX2 5WR, for the respondent

 

The following cases are referred to in this decision:

Purser v the Local Board of Health for the District of Worthing (1877) XVIII  QBD 818

Smith v Richmond (Inspector of Taxes) [1899] AC 448

Gilmore v Baker-Carr [1962] 1 WLR, 1165

Grewar v Moncur's Curator Bonis [1916] SC 764

Watters v Hunter [1927] SC 310

Twygen v Assessor for Tayside Region [1991] SC 98

Darlington & Sons v Langridge (VO) [1973] RA 207

Johnson (VO) v H B Foods Ltd [2013] UKUT 539 (LC)

 

 

DECISION

Introduction

1.             This is an appeal against the decision dated 11 December 2012 of the Valuation Tribunal for England. The appeal arose in the following way. The appeal hereditament, at The Old Airfield, Leckford, Hampshire, is and was at all material times occupied by Tunnel Tech Ltd (TTL). Since about 2007 the hereditament has been the subject of a number of proposals. Those appeals related, in part, to the rateable value of the premises and in part to the issue of the principle of rateability, it being argued on behalf of the occupier that the hereditament was entitled to agricultural exemption. Seven appeals that raised the issue of exemption were determined by the Valuation Tribunal. The first five of those appeals relate to the 2005 valuation list and the sixth and seventh to the 2010 list but nothing in this appeal turns on the different dates.  (The proposals or appeals on rateable value remain outstanding but are not the concern of this appeal.) The President of the Valuation Tribunal (Professor Zellick QC) concluded that the premises qualified for exemption as constituting a market garden within the meaning of paragraphs 2 (1) (d) and 3 (b) of Schedule 5 to the Local Government Finance Act 1988. The Valuation Officer appealed to this Tribunal against that decision. TTL is the respondent to the appeal.

Facts

2.             The parties produced statements of agreed facts and issues from which, together with the evidence and the assistance received from counsels’ skeleton arguments and closing submissions, and my accompanied inspection of the hereditament on 13^th March 2014, I find the following facts.

3.             The hereditament is 10 ha of land, including a reservoir, buildings, hard standings, plant and other structures. It stands in the countryside on the edge of a former airfield about 7 miles to the south east of Andover. TTL has occupied the hereditament by virtue of a lease from John Lewis Properties since 1985, in which time the hereditament has more than doubled in area, a reservoir has been constructed, and buildings have been added, taken away, or put to a slightly different use as production techniques have been developed and refined. The largest structure on the site at the date of my inspection was the Phase II/III building which came into use in November 2010. It contains nine insulated tunnels, a filling hall and an emptying and dispatch hall, enabling a high degree of atmospheric control of the building and automation of the processes. (A careful description of all the buildings plant and machinery and their relevant dates is included in the statement of agreed facts as part 2. There is also a full account of the rating history in part 4. As none of it has any significant bearing on the issue I have to decide, I do not refer to it further.) TTL is a subsidiary company of Monaghan Mushrooms Ltd.

4.             The nature and legal classification of the final product that is sold from TTL is of crucial importance, so I shall describe the processes in a little detail. (The words I shall use to describe these processes are my own and do not carry any technical significance. I make this clear because I intend to avoid the unhelpful style found in the statement of facts in sentences such as "Phase III refers to the{mushroom produce}<specialised mushroom compost> fully {propagated}<populated> with mushroom mycelium."

5.             The process is described in three phases.  Phase I begins when TTL buys local organic wheat straw, deep litter poultry manure and agricultural gypsum from various different sources. The straw is thoroughly wetted and after 2 to 4 days it starts to heat up through microbial action. Poultry manure, more water and agricultural gypsum are then blended with the warm wet straw and over several days the mixture is turned and moved. The microbial action breaks down the cellulose and lignin within the straw and the mixture becomes a homogenous material with a high moisture content. That material then undergoes high temperature fermentation. Until 2006 this was done in the "Phase I Open Side Building", thereafter the material has been put into fermentation bunkers, which have a concrete floor that allows air to be forced through into the material above in a measured way that enables temperature and oxygen concentration to be controlled to produce an efficient high temperature fermentation. The end result is to produce a rich, dark compost that will, with further treatment, provide a nutritious material for the growth of mushroom mycelium.

6.             The material is then pasteurised. This process was originally carried out in polytunnels but, since November 2010, it has almost all been transferred to the new Phase II/III building. The temperature of the material is allowed to rise, initially to about 49°C, followed by a rise to 57°C for about 10 hours and then cooling to 48°C for 3 to 4 days of conditioning. At the end of this process any free gaseous ammonia has been metabolised and unwanted animal pests and weed moulds eliminated. The material is then allowed to cool until it reaches 24°C when it is ready for Phase II.

7.             In Phase II the material is taken by conveyor belt into a sterile area where mushroom spawn is applied to it from a hopper at a carefully measured rate. The spawn is mushroom mycelium grown through sterilised wheat or rye grain produced in laboratory conditions. TTL buys this spawn from two specialised sources, Amycel or Sylvan. The spawn is alive but kept dormant by refrigeration to 2°C. Contact with the warm material activates the spawn which starts to grow through it. From 2005 to 2013 a proportion of material was sold at the Phase II stage. This proportion was 63% of total output at 1 April 2005 and down to 0% by 1 February 2013.

8.             In the course of Phase III, by careful control of temperature, the mycelium is encouraged to complete its growth throughout the material. Before 2010 this stage was undertaken in the polytunnels, now it is done in the purpose-built tunnels in the Phase II/III building. By the end of 18 to 20 days the mycelium pervades the material and is visible as a mass of white tendrils. At that point it is winched out of the tunnel, broken up mechanically and conveyed to the vehicles that take it away. The process of breaking it up breaks the mycelial strands and triggers a reaction known as "reanastamosis", which is a surge in activity as the strands seek to rejoin, causing a peak in temperature shortly after the final material leaves the hereditament.

9.             The final material is then taken to specialist mushroom farms. There it is covered with a layer of inert material, known as the casing layer, and the mycelium produces "pinheads" which become mature mushroom caps. The total time from the application of mushroom spawn to the harvesting of the first flush is about 5 to 6 weeks. The caps are harvested at the required size and the material is then capable of producing up to another three "flushes" of growth over a period of 2 to 3 weeks.

10.         The proportion of the Phase III product sold has grown from 37% of total output as at 1st April 2005 to 100% at 1st February 2013, with most now going to mushroom farms within the Monaghan Mushroom group.

11.         Mr Harker gave evidence, which I do not think is disputed, that if the Phase III material were simply abandoned or spread on the ground, the mycelium in the material would go on to produce mushrooms, though not in the quantity nor of the quality that would be achieved by a mushroom farm. (Indeed he produced helpful samples in the tribunal which illustrated the various stages and included material which had been allowed to go on and grow mushrooms.) He stressed, and I accept his evidence on this point, that the Phase III material is a living and growing product: it is a stage on the way to the final mushrooms. At the end of Phase III mushrooms are, to a degree, inevitable, absent the intervention of pests, diseases or bad weather. To that extent the final Phase III material is very different from the sort of compost that is sold to be spread on the ground as a soil conditioner or to be used as a growing medium for plants.

Evidence –

Ms Tracy Dearing

12.         Ms Dearing gave evidence on behalf of Mr Reeves, the Valuation Officer for Test Valley Billing Authority and the Unit Head for the Non-Domestic Rates South West Business Unit. She told me that she holds a BA (Hons) degree and is a member of the RICS. In her two witness statements she described the rating history, the development of the hereditament and gave her understanding of the product of TTL and the methods by which it was produced. In cross-examination it was clear that by the date of the hearing there was little or no difference between the parties as to the basic facts, which are recorded above, although there remained differences of interpretation and preferred terminology. In cross-examination she agreed that if TTL's operation continued on to the production of mushrooms, she would regard the hereditament as entitled to agricultural exemption, as being market garden buildings. She agreed that the propagation of the mushroom spawn through the compost in Phase II might reasonably be described as "cultivation" and that "pinning" took place naturally. She was not suggesting that the process must be an industrial one simply because it had become very controlled and sophisticated and used heavy machinery. In her view a building was a market garden if it were selling produce in the state in which it could be sold into a market. It would make no difference if it were not sold there directly but to somebody who processed it in some way. She did not feel that this was what was happening on the hereditament. She agreed that it was not always easy to draw a distinction between a market garden and a nursery ground, there would always be some difficult cases, but in her view the hereditament was not composed of  buildings forming part of a 'market garden'. On the other hand, if 'nursery ground' buildings had exemption, which she did not think they did, then she saw no reason why TTL's hereditament should not have agricultural exemption under that head.

13.         Ms Dearing was taken in cross-examination to a number of the other sites said to be ‘comparators’ and explained the reasons why she felt the comparisons were not helpful. She did not accept that the other sites suggested a Valuation Office policy of allowing exemption to nurseries that were wholly inside buildings.

Mr Timothy Harker

14.         Mr Harker (BSc (Hons)) is the general manager of TTL with extensive training and experience in the mushroom growing industry. He said that TTL is a subsidiary of Monaghan Mushrooms Ltd and is part of the Monaghan Mushroom Group, a leading grower of mushrooms. He described in considerable detail the process undertaken by TTL and the use made of the various parts of the hereditament.  He explained that now TTL only produces Phase III produce for sale. He emphasised that the process was not the production of a specialist compost, it was the growing of the mushroom organism. Although he referred to 3 different Phases, it was really all one seamless operation with mushrooms as the end result. The hereditament would not be large enough to  grow the mushrooms beyond Phase III to their final form. It would take a very substantial extra area and require extensive physical separation in order to minimise the dangers of cross contamination.

15.         Mr Harker drew attention to what he described as 'comparators' being, he believed, large wholesale businesses that propagate and cultivate plants for others to raise to the stage where they produce food and do so largely or entirely within buildings or other structures. They benefit from an agricultural exemption.

The Law

16.         The Local Government Finance Act 1988, section 51, as amended by the Local Government Act 2003, section 67 (2), provides that schedule 5 shall have effect to determine the extent (if any) to which a hereditament is exempt from local non-domestic rating. Schedule 5, so far as relevant, reads –

Agricultural premises

1. A hereditament is exempt to the extent that it consists of any of the following-

(a) agricultural land;

(b) agricultural buildings.

 

2.-(1) Agricultural land is-

(a) land used as arable, meadow or pasture ground only,

(b) land used for a plantation or a wood or for the growth of saleable underwood,

(c) land exceeding 0.10 hectare and used for the purposes of poultry farming,

(d) anything which consists of a market garden, nursery ground, orchard or allotment .... or

(e) land occupied with, and used solely in connection with the use of, a building which ( or buildings each of which) is an agricultural building by virtue of paragraph 4, 5, 6 or 7 below.

(2) but agricultural land does not include-

(b) gardens (other than market gardens)

 

3. A building is an agricultural building if it is not a dwelling and –

(a) it is occupied together with agricultural land and is used solely in connection with agricultural operations on that or other land, or

(b) it is or forms part of a market garden and is used solely in connection with agricultural operations at the market garden.

17.         It may be useful to trace the development of the agricultural exemption through the statutes and the authorities that have attempted to interpret them. Under section 211(1)(b) of the Public Health Act 1875 "the occupier of any land used as arable meadow or pasture ground only, or as woodlands market gardens or nursery grounds .... shall be assessed in respect of the same in the proportion of one fourth part only of such net annual value thereof." There was no mention in that act of agricultural buildings. In the case of Purser v the Local Board of Health for the District of Worthing (1877) XVIII QBD 818 the Court had to consider land covered by greenhouses which was used for growing fruit and vegetables for sale. The question was whether that hereditament was within the exemption created by the act. The High Court had no doubt that it was and the Court of Appeal agreed. Lord Esher MR said (at page 822)  "there can be no doubt that the respondent uses the whole of this plot of land as a market garden - for the purpose of growing fruits and vegetables for sale. I think that the land is not the less used as a market garden because these glasshouses have been placed upon it."

18.         The law was amended by the Agricultural Rates Act 1896. Section 1 expressly distinguished between the rate the occupier of agricultural land was liable to pay in respect of buildings and other hereditaments and the rate he was liable to pay on agricultural land. Section 9 defined agricultural land in much the same terms as the earlier Act. In the case of Smith v Richmond (Inspector of Taxes) [1899] AC 448 the courts again had to consider whether or not land covered with greenhouses in Worthing was entitled to exemption as agricultural land. In the Court of Appeal ([1898] 1QB, page 683 at page 703) Lord Lindley MR said the express mention of buildings made the whole statute perfectly clear and removed the doubt caused by the use of the words "market gardens and nursery grounds" in section 9. Purser was of no assistance. The House of Lords agreed. The Earl of Halsbury LC said ([1899 ] AC page 450) that he found it extraordinary that a claim should be made that the greenhouses were agricultural land and agreed with the Master of the Rolls that the terms "land" and "buildings" in that act were mutually exclusive of each other.

19.         Smith v Richmond was referred to by Lord Denning MR in Gilmore v Baker-Carr [1962] 1 WLR, 1165 at 1172. In that case the question was whether the occupier of a seven chicken broiler houses was liable to pay rates on them or whether they were exempted as agricultural land or agricultural buildings as defined in the Rating and Valuation (Apportionment) Act 1928 section 2. Lord Denning said –

" In applying these definitions to the seven cases before us, these points arise. First, a broiler house is clearly used for the purpose of poultry farming: but is it "land" used for the purpose of poultry farming? I think not. It is a "building" and not "land." The act draws a clear distinction between "buildings" and "land" and those terms are mutually exclusive here, just as they were in Smith v Richmond. I have no doubt that the whole of a broiler house, including the earth on which it stands, is a "building" and not "land." It makes no difference what the floor is made of."

The rest of the Court of Appeal concurred.

20.         Parliament had another attempt at the definition of agricultural land and agricultural buildings in section 26 (3) of the General Rate Act 1967. This, so far as relevant, read as follows:"

(3) in this section the expression "agricultural land" –

(a) means any land use as arable meadow or pasture ground only, land used for a plantation or a wood or for the growth of saleable underwood, land exceeding one quarter of an acre used for the purposes of poultry farming, cottage gardens exceeding one quarter of an acre, market gardens, nursery grounds, orchards or allotments ....

(4) in this section, the expression "agricultural buildings" –

(a) means buildings (other than dwellings) occupied together with agricultural land or being or forming part of a market garden, and in either case used solely in connection with agricultural operations thereon;...."

21.         A comparison with the Local Government Finance Act 1988, as amended in 2003, shows that the definitions stayed broadly the same, with a degree of re-ordering and some omissions and additions. One alteration which the Respondent argues to be significant is that in the 1967 Act 'agricultural land'  "means... market gardens, nursery grounds..." while in the 1988 Act "agricultural land is - (d) anything which consists of a market garden, nursery ground..." (my underlining.)

22.         I was referred to a number of cases that have considered the meaning of "market garden." In the Scottish case of Grewar v Moncur's Curator Bonis [1916] SC 764, which turned upon the interpretation of the Agricultural Holdings (Scotland) Act 1908, the court had no trouble in finding that a holding entirely planted with raspberry bushes was a market garden despite the fact that the produce was not sold to individuals but to a wholesale buyer. The character of the holding could not be affected by the manner in which the tenant disposes of his produce. In another Scottish landlord and tenant case, Watters v Hunter [1927] SC 310, Lord Clyde expressed the view (at 317) that interpreting market garden according to its ordinary meaning in popular language –

"the trade or business of a market gardener is, in my opinion the trade or business which produces the class of goods characteristic of a greengrocer's shop, and which in the ordinary course reaches the shop via the early morning market where such goods are disposed of wholesale. It is no doubt the case that this class of goods includes small fruit, and it may be, flowers."

23.         A more modern view came from a different Lord Clyde in Twygen v Assessor for Tayside Region [1991] SC 98. He considered section 7 (3) of the Valuation and Rating (Scotland) Act 1956 which had a similar division between agricultural land and agricultural buildings as the English legislation. He noted that market gardens were in a special case and that a market garden might consist wholly of a building or buildings without any land other than their own site. He also stressed that the application of the statutory provisions must allow for advances in the technical methods of agriculture or horticulture and he saw no reason in principle why the use of advanced technology should deprive a market garden of its character as such. The arrival of a sophisticated and specialised procedure for carrying on the operation should not make the activity any the less horticultural. He continued (at page 102) –

"But one essential element in the idea of a market garden seems to me to be the production of an article, be it fruit, vegetable or perhaps flowers, growing in that garden, which will itself be sold directly or indirectly to a member of the public for him to consume. It is the fruit and vegetables grown in the garden which would be consumed by the purchaser or by others to whom he has made them available and it is the flowers grown there which would be used by the immediate or eventual purchaser.

The things which are produced on the subject of appeal are not sold for consumption by the public. They are described as pre-basic seed potatoes which are sold to a number of outlets who are processors, supermarket chains, approved individual seed potato growers and plant breeders. All of them as is found in the case continue the chain of propagation of seed potatoes. It is found that this after a number of years leads to the cultivation of potatoes for consumption."

24.         The other members of the court gave judgements to a similar effect, drawing a distinction between goods that are "heading for" a general public market and those that are better described as nursery plant production or seed production activities. (Lord Prosser at page 103 and Lord Milligan at page 104.)

25.         The Lands Tribunal referred to those authorities in Darlington & Sons v Langridge (VO) [1973] RA 207. In that case Sir Michael Rowe QC, the President, had to consider laboratories which were used for the production of mushroom spawn. He recorded that the process was that mushroom spores were taken in sterile conditions and grown on a jellylike material in a test-tube. The spores germinated and grew into mushroom mycelium. Under sterile conditions small pieces of the mushroom mycelium were put in jars of, amongst other things, sterilised cereal grains and would grow through it. These jars were used to multiply other jars and eventually the spawn thus grown would be bagged and sent to a mushroom farm. He considered the cases mentioned above and concluded that none of the descriptions he read were apt to cover the production of spawn although all were apt to cover the growing of mushrooms. It followed that the rooms in question were not market gardens.

26.         Both parties referred me to the case of Johnson (VO) v H B Foods Ltd [2013] UKUT 539 (LC) in which the Lands Chamber (the President and Mr A J Trott) restated the principle that in rating cases the appeal to the Tribunal is dealt with de novo. (See paragraphs 62 - 78) That means that the Tribunal cannot be confined by the evidence that was produced to the VTE or the agreements made before it. The Tribunal will not disregard the decision of the Tribunal below and will expect the appellant to satisfy it that the decision was wrong (paragraph 64). The Tribunal will regard itself as confined to the issues raised by the appellant in its notice of appeal (paragraph 65) and generally previous decisions on questions of fact and opinion will not be regarded as evidence of value in later cases (paragraph 66).

27.         In this case the view of the VTE is summarised in paragraphs 20 and 21 of its decision. Prof. Zellick QC said –

"in my view, the many cases relied upon in argument establish a clear, coherent and correct principle in relation to the meaning of market garden: activities which are merely preparatory, ancillary or incidental to, or removed from, the cultivation of the mature product are not such as to qualify as a market garden; but activities proximate to its final stage will suffice."

28.         He said he had no doubt that the hereditament was a market garden –

" The bulk of the cultivation and growing take place there; the mushroom mycelium that is passed on is a living, growing, animate product -- inchoate mushrooms so to speak -- that will itself in just 2 to 3 weeks, with minimal intervention, yield mushrooms for harvesting. It is not a compost or fertiliser that will merely stimulate growth; it is not like a seed potato that will be used for propagation; it is not akin to an experimental bulb or the cultivation of seeds; it is not something that needs elaborate and extensive treatment to turn it into something else before the final product can begin to be cultivated; it is not a product a long way from maturity."

 

 

Issues

29.         The issues are whether, in the light of TTL's activities at the hereditament, the hereditament was exempt from non-domestic rates because –

1. It was "agricultural land" within the meaning of paragraph 1 (a) and 2 (1) (d) of schedule 5 to the 1988 Act, being "anything which consists of a market garden, nursery ground", or

 2. It was "agricultural buildings" within the meaning of paragraphs 1 (b) and 3 (b) of the schedule, because " it is or forms part of a market garden and is used solely in connection with agricultural operations at the market garden."

Submissions

30.         Mr Singh's initial skeleton submissions addressed a number of sub-issues, such as whether it was necessary for a product to be grown to final maturity at a hereditament in order for the hereditament to be treated as a market garden, however he focused in closing on the two issues I have identified above. On the first issue he submitted that a clear distinction had been drawn since the 1896 Act between agricultural land and agricultural buildings. Decisions of the highest authority had recognised that those two terms were mutually exclusive. That separate treatment is found in the 1988 Act. It would have been quite extraordinary if Parliament had overthrown that distinction by adding the word "anything" to paragraph 2(1)(d) with the intention that "anything" should include agricultural buildings. If that had been what Parliament intended, why did it find it necessary to put in paragraph 3(b)? He said the hereditament could not qualify as agricultural land.

31.         On the second issue he examined the cases and submitted that the basic test was whether or not the product of the hereditament would be found for sale to a consumer in a green grocer's shop, supermarket or some more modern equivalent. The cases did not support a "proximity test", as suggested by the VTE. Such a test would lead to even greater uncertainty. The product of TTL is the Phase III spawned material; it is not mushrooms. On the correct analysis of the authorities and the facts TTL's hereditament is not and does not form part of a market garden. Therefore it cannot fall within 3(b).

32.         Mr Nardell QC, for the respondent, identified two questions in closing :

1. Does the fact the crop is not yet in its final form when it leaves the premises and that it continues to grow, provide an impediment to the hereditament being a market garden. This issue turns upon the character of the activities undertaken on the hereditament and is essentially a matter of fact.

2. Is the hereditament prevented from obtaining exemption as a nursery ground by the fact that the enterprise is conducted within buildings.

33.         Mr Nardell examined the authorities. He recognised that the principles to be obtained from them imposed a limit but it was a flexible and realistic one. It included direct and indirect supply, for example. Nothing in the cases said that the produce from the hereditament must be in its final form. All farming developed and changed. Mushroom farming was no exception. The split between what might be regarded as propagation and the final maturing was a response to consumer pressure and in order to produce a better product. That was not something that Parliament would wish to discourage. The VO had accepted that the hereditament would be market garden buildings if the Phase III were to grow on for another two weeks so that the final product was mushrooms. Instead there was a single continuous operation between sites. What TTL produced was sufficiently proximate to the market for the hereditament to be a market garden and therefore, since it was almost entirely within buildings, to fall within the exemption.

34.         Both a market garden and a nursery ground may be agricultural land. The distinction between the two is not only hard to define and blurred, it is constantly changing and overlapping. Both a market garden and a nursery ground could be and often are completely under glass; there is no good policy reason for exempting the buildings of the one but not the other. It would be legislative nonsense for a market garden under glass to be exempt but not a nursery ground under glass. The addition of the word "anything" does away with that anomaly if it includes a building or buildings. As a matter of ordinary English “anything” clearly includes a building. If "anything "does not include a building it is very hard to see what it would include. There is a very low threshold before a structure becomes a building, see for example the broiler houses over bare earth that Lord Denning remarks upon in the case of Gilmore. It is difficult to see that "anything" could exclude a building but include a substantial cold frame or polytunnel. It would be strange to construe "anything" as meaning very little. Land and buildings are no longer mutually exclusive in this context.

Consideration and Conclusions

35.         I shall consider the second issue first because if TTL's hereditament is to be regarded as a market garden, it will be exempt as "agricultural buildings" under paragraph 3(b) and it will not be necessary to go on and consider the first issue, which is whether it is "agricultural land."

36.         It seems to me that it is very important to read the definitions of agricultural land and agricultural buildings in their context. In paragraph 2(1)(d) the draughtsman separately specifies a "market garden, nursery ground, orchard or allotment" as falling within the definition of agricultural land. They may overlap and the distinctions between them may be very difficult to discern but they are recognisably different concepts which Parliament has thought it worthwhile to list individually. The same detailed specification is found in the list of things that agricultural land does not include. Therefore, it seems to me that when Parliament takes one item, a market garden, out of the list and treats it individually, it is an indication that Parliament does not mean also to include the classes it has not selected and that the boundaries of the class it has identified end at the boundaries of the classes it has not. Parliament must intend that the function of a market garden does not include the function of a nursery ground. What those functions are is a matter of fact and degree for the decision maker but the drawing of the line is a matter for Parliament.

37.         I find the guidance of the Scottish cases (Grewar v Moncur's Curator Bonis; Watters v Hunter ; Twygen v Assessor for Tayside Region, all quoted above) to be helpful. I agree with Lord Clyde in Twygen that the essential element is the production of an article, fruit, vegetables, flowers or, indeed, mushrooms or other fungi, that will be sold directly or indirectly to a member of the public for consumption. This essential element must take account of changing methods of production and sale and changing public tastes. There are a very large number of such articles that are sold today in a modern supermarket (or through the Internet) that a greengrocer 20 or 30 years ago would never have dreamt of. In my view the appellant was wise to abandon the argument that the botanical maturity of the produce is some part of the test: the briefest glance at the shelves of any supermarket shows that cannot be so. I accept also that the produce may be sold from the market garden before it could be actually be consumed: for example the unripe fruit that will ripen during the journey or on the shelves. Beyond that I do not accept that the notion of proximity is of any assistance. Either the facts of a particular hereditament mean that it can be said to be a market garden, or they do not. It is not enough that a hereditament is almost a market garden.

38.         I refer to the methods of production because, at one stage, it appeared that the VO might be suggesting that the operations at TTL were so technically controlled and used such sophisticated and large machinery that they were more akin to an industrial process. Again, in my view, the VO was wise not to press the argument. Agriculture has developed almost beyond recognition. One thing that is perfectly clear from the rating legislation is that both a market garden and a nursery ground (and indeed the other agricultural operations mentioned in the act) if undertaken on land, will be regarded as agricultural and entitled to exemption. There is nothing in the statute to rule them out from that exemption on the basis of the degree of technicality or machinery they employ. Mr Nardell was quite right to observe that both a market garden and a nursery may, in practice, be carried on entirely under cover, perhaps hydroponically, uninfluenced by the seasons and weather outside and with the land underneath it performing no function other than support.  The difference as he points out, is that the statute, if read as the VO argues, gives agricultural exemption to the market garden but not to the nursery.

39.         Each case must, of course, be decided upon its own facts and, on that basis, each of the cases I was referred to seem to me entirely understandable. In particular, the production of the mushroom spawn in Darlington & Sons v Langridge (VO) is evidently distinguishable from the situation in TTL's hereditament, which is much further along the road towards the final mushrooms. In certain cases it was not necessary for the Court to draw a distinction between a market garden and a nursery ground, in others it was. As I have said, the nursery ground appears to me to be a recognisably distinct operation. A nursery is where small plants or trees are propagated or sown with a view to selling them to someone else for another purpose, such as the production of timber, fruit or vegetables, or, perhaps, purposes such as landscaping or decoration. An operation that produces tomato plants to sell to someone else who grows the tomatoes for consumption seems to me to be a nursery. It is not less a nursery because it uses a high degree of skill and control to ensure that the plants it sells are on the verge of producing an excellent crop. It is not less a nursery because if it failed to sell some of its plants and abandoned them in the car park there would be a good chance that the plants would produce some tomatoes.

40.         In my judgement, as a matter of fact and degree, the operations on TTL's hereditament are not those of a market garden. I think they would be, if TTL grew its Phase III material on until it produced mushrooms, which were then sold; just as a nursery growing and selling tomato plants would become a market garden if it produced and sold the tomatoes. But, as it stands TTL's operation is, to my mind, indistinguishable from the nursery that supplies trees and plants bred to be sold to others who will produce the final fruit or vegetables. Since exemption for agricultural buildings by virtue of paragraph 3(b) depends upon TTL’s hereditament being a ‘market garden’, and on that point the VO succeeds, I turn back to the first issue.

41.         It is argued that TTL's hereditament is "agricultural land" within the meaning of paragraph 1(a) and 2(1)(d) because although it is almost entirely contained within buildings those buildings are "anything” which consists of a market garden or nursery ground. If that argument is right, it is sufficient that the hereditament consists of a nursery ground.

42.         There is obvious force in Mr Nardell's argument that "anything" is quite capable of including buildings. Indeed if "anything which consists of … nursery grounds" does not include buildings it is not at all clear what it does include. I agree with him that extensive cold frames, to take one example, might well be said to be "buildings" and therefore excluded. Very little maybe left to fall under the umbrella of "anything". It is to be supposed that the parliamentary draughtsman thought that some useful purpose would be served by the change in wording. The removal of the distinction between exempt market garden buildings and non-exempt nursery buildings might be thought to be such a useful purpose.

43.         On the other hand, Mr Singh is correct to say that if "anything" includes buildings, the separate provision in paragraph 3(b) is completely otiose. Market garden buildings would be "agricultural land" under 2(1)(d). The mutually exclusive distinction between land and buildings in the rating legislation, recognised since the House of Lords in Smith v Richmond, would have been swept away.

44.         I cannot accept that it can have been in the mind of the parliamentary draughtsman to make a fundamental change in the schedule by the addition of that one word while leaving the structure of the rest of the schedule broadly unchanged and, significantly, continuing to retain the different definitions of "agricultural land" and "agricultural buildings" that first led the courts to conclude that Parliament must have intended to draw a distinction between them. I sympathise with Mr Nardell's protestations that it is difficult to know what "anything" can mean but I am sure that it does not mean that

45.         Nor can I see why there should be a special exemption for market garden buildings as "agricultural buildings" but no such exemption for nursery ground buildings. After all, both market garden and nursery ground are defined as agriculture and the buildings may be almost identical. No explanation was suggested by either party. Mr Singh said that he had no reason to feel uncomfortable about his inability to offer any explanation because the words of the law are clear. With that I must agree. That is the effect of the law on its proper interpretation. If there is to be a change it is for Parliament to make it.

46.         I have considered what was said about the ‘comparator’ sites but I put no weight on them. Every case is different and there was dispute about important facts concerning the circumstances of those sites which I am in no position to resolve.

47.         I conclude that TTL' S hereditament is not "agricultural land", and the VO succeeds on both issues. I therefore allow the appeal.

48.         This decision will become final when the question of costs is determined, and not before. The accompanying letter sets out the procedure for making submissions in writing.

DATED:7 April 2014

 

HH David Mole QC

 

 

 

 

 

 

 

ADDENDUM ON COSTS

 

49.         On 14^th April 2014, the VO submitted to the Tribunal that, as he had succeeded on the main issues, the general principle that costs should follow the event applied and the respondent TTL should pay the costs of the appeal. Submissions on costs on behalf of the Respondent were presented to the Tribunal attached to a letter of 22nd April. While acknowledging the general rule that costs should follow the event, it was argued, in summary, that the appellant's case was prepared and presented in a way that unnecessarily lengthened proceedings. The Tribunal said he would be interested to know what the appellant's response was to that submission.  That response with several attachments was received from HMRC on 12 May 2014.

50. The Tribunal has carefully considered both sets of submissions, the attachments, and the case papers. The Tribunal broadly accepts the submissions set out on behalf of the appellant and is not persuaded that the appellant's case was prepared and presented in a way that unnecessarily lengthened the proceedings. The VO succeeded in the appeal on the principal issues and the respondent TTL will pay the VO's costs of the appeal.

 

HH David Mole QC

 

 

Dated: 15 May 2014