Croydon Gas Co v Rating Authority for the County Borough of Croydon

 

Croydon Gas Co v Rating Authority for the County Borough of Croydon

LOCAL GOVERNMENT: COMPANY; Other Company

KING’S BENCH DIVISION

HUMPHREYS, LEWIS AND HENN COLLINS JJ

17, 25 JANUARY 1946

Rates and Rating – Assessment – Gas company – Computation on profits basis – Capital sum required for conduct of undertaking – Source from which, and

price at which, capital obtainable irrelevant.

The Croydon Gas Co who were the occupiers of certain hereditaments in Croydon, sought a reduction of the rateable value placed upon those hereditaments

by the valuation committee. The hereditaments in question were required to be valued on the profits basis and it was agreed that, on the facts of the case, a

proper tenent’s remuneration was 12 1/2 per cent upon the estimated capital required for the conduct of the undertaking. The company had established certain

funds for the benefit of their employees and during 1939 the uninvested balance standing to the credit of these funds was £66,311. Under the rules governing

the funds, the trustees could, at their discretion, leave the uninvested balance with the company and this had been the practice, the company paying interest

thereon at 4 per cent or 5 per cent per annum. The recorder found that the capital sum required for the conduct of the undertaking was £730,014 but that

£66,311 should be deducted therefrom, on the ground that the uninvested balance of the funds for the benefit of the employees was available to the company in

running the undertaking. He held, therefore, that the hypothetical tenant’s capital was £663,703, and that £2,622 (the sum paid by the company as interest on

the uninvested balance of the funds) should be allowed as a working expense and be deducted from the nett receipts of the company. On an appeal to the

Divisional Court from the recorder’s decision, the company contended that, in computing the tenant’s capital, no deduction should be made on account of the

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uninvested balance of the funds for the benefit of the employees because a tenant could not assume that he would have the use of that balance for any

particular period, or at all, and, moreover, the source from which a tenant raised the capital required for the undertaking was irrelevant. The rating authority

contended that whether or not the sum of £66,311 should be deducted was a question of fact and not of law, and therefore no appeal lay:—

Held – (i) It was not essential, in making a computation on the profits basis, to fix 12 1/2 per cent as the tenant’s share, but, whatever percentage was fixed, it

must be applied to the whole capital which the tenant was assumed to put into the business.

(ii) the source from which, and the price at which, a tenant could get his capital had no bearing upon what amount was required. The capital sum required

could not vary with the particular tenant. As it had been 􀂭 384􀀉 found that the capital sum required for the conduct of the undertaking was £730,014, that sum

was immutably fixed and no deduction could be made from it. The fact that a tenant could, for the time being, obtain part of the capital required by paying

less than 12 1/2 per cent for it was irrelevant.

(iii) in giving effect to irrelevant facts, the recorder’s decision involved a mistake in law.

Notes

It is held in this case that where an undertaking owns hereditaments which are assessable for rating purposes upon a profits basis, the hypothetical capital

necessary for running the undertaking is not to be reduced by sums which are available upon reduced interest terms, such as, in the circumstances here

considered, uninvested funds in the hands of the trustees for employees.

As to the Rating of Gas Undertakings, see Halsbury Hailsham Edn, Vol 27, pp 417–421, paras 848–852; and for Cases, see Digest, Vol 38, pp 552–554,

Nos 929–941.

Cases referred to in judgment

Kingston Union v Metropolitan Water Board [1926] AC 331, 38 Digest 547, 901, 95 LJKB 605, 134 LT 483.

Mersey Docks & Harbour Board v Birkenhead Assessment Committee [1901] AC 175, 38 Digest 526, 735, 70 LJKB 584, 84 LT 542.

Railway Assessment Authority v Southern Ry Co, London County Council v Southern Ry Co [1936] 1 All ER 26, [1936] AC 266, Digest Supp, 105 LJKB 115,

154 LT 314.

Port of London Authority v Orsett Union Assessment Committee [1920] AC 273, 38 Digest 563, 1017, 89 LJKB 481, 122 LT 722.

Case Stated

Case Stated under Rating and Valuation Act, 1925, s 31, by the recorder of the county borough of Croydon. The appellants, the Croydon Gas Co had appealed

to the Court of Quarter Sessions, from a decision of the Assessment Committee for the county borough of Croydon. The following facts were found by the

recorder:—

‘(a) … the hereditaments to which this appeal relates comprise that part of the [appellants’] undertaking situate in the rating area of the County

Borough of Croydon. (b) The appellants have established certain funds for the benefit of their employees and during the year 1939 [the total of] the

average uninvested balances standing to the credit of these funds [was] £66,311. (c) It has been and is the practice for the trustees of the several funds,

in accordance with the rules governing the funds, at their discretion to leave with the appellants the uninvested balances of the funds and for the

appellants to pay interest at 4 per cent. per annum or less to the Co-partnership Fund and at 5 per cent. per annum to the other funds.’

The case further stated:

‘7. It was agreed that the hereditaments to which the appeal related were by law required to be valued on the principle generally known as “the

profits basis” as explained in Assessment Committee of Kingston Union v. Metropolitan Water Board

8. In order to determine the rateable value of the said hereditaments on the profits basis it is first necessary to ascertain what is generally known as

the cumulo value of the whole undertaking. In the course of finding the cumulo value it is necessary to determine (inter alia) the tenant’s working

expenses and his remuneration …

9. It was common ground between the parties for the purposes of this appeal and I found that a proper tenant’s remuneration (including interest risk

and profit) could on the facts of this case be ascertained by estimating the capital required by the tenant for the conduct of the undertaking and allowing

the tenant 12 1/2 per cent. upon that estimated capital.

10. Upon this point the appellants submitted to me a valuation in which no deduction was made in arriving at the estimated amount of the tenant’s

capital on account of the uninvested balances of the several funds being available for use by the appellants in running the undertaking, whereas the

respondents submitted to me a valuation in which an amount of £66,311 was so deducted. On the other hand the sum of £2,622 paid to the said funds

for interest on such balances was not claimed by the appellants as part of the tenant’s working expenses but was allowed as such in the valuation

submitted by respondents. I adopted the figures shown by the respondents … I treated the interest on the said funds as a working expense and deducted

it from the nett receipts of the undertaking. In determining the tenant’s capital I deducted from the total tenant’s capital of £730,014 the balances of the

said funds, £66,311, thus arriving at the capital which I decided the hypothetical tenant would require of £663,703 …’

The Croydon Gas Co, being dissatisfied with this decision, applied for a case 􀂭 385􀀉 to be stated for the opinion of the High Court of Justice on the

following point of law, viz:

‘Whether in computing the tenant’s capital for the purpose of a valuation on the profits basis it is correct in law to deduct the said sum of £66,311,

representing balances in the above-mentioned funds of which the tenant has or may have the use.’

It was contended by the company:

‘(a) that a tenant of the undertaking could not assume that he would have the use of the balances standing to the credit of the said funds in whole or

in part for any particular period or at all. (b) that if a tenant were able to have the use of balances in these funds he would not only be under an

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obligation to pay interest on the loan but the said balances would be at his risk in the business in just the same way as if he borrowed his capital from a

banker or some other source or provided it from his own resources. (c) that the source from which a tenant will raise the capital required for the conduct

of the undertaking is irrelevant.’

The respondents contended (inter alia) that the question whether or not the said balances ought to be deducted was a question of fact and not of law and

that on the facts the said balances ought to be so deducted.

A S Comyns Carr KC and Harold Williams for the company.

Frederick Grant KC and Percy Lamb for the rating authority.

Cur adv vult

25 January 1946. The following judgment was delivered.

HENN COLLINS J [delivering the judgment of the court]. This matter comes before us upon a case stated under the Rating and Valuation Act, 1925, s 31,

by the recorder of the county borough of Croydon.

The Croydon Gas Co sought a reduction of the rateable value set upon certain hereditaments of which they were the occupiers in that borough. It is

common ground that these are hereditaments to be valued on the principle known as the profits basis as explained in Assessment Committee of Kingston Union

v Metropolitan Water Board. One step in the application of that principle requires the ascertainment of the capital sum required by the tenant for the conduct

of the undertaking, and the next step is the application to that sum of an appropriate percentage for his remuneration. What that capital sum should be, and

what is the appropriate percentage to apply, are clearly questions of fact: see Mersey Docks & Harbour Board v Birkenhead Assessment Committee, per Earl

of Halsbury LC ([1901] AC 175, at p 180), and Railway Assessment Authority v Southern Ry Co, per Viscount Hailsham LC ([1936] 1 All ER 26, at p 39).

The recorder fixes the proper percentage at 12 1/2 per cent in para 9 of the case, while, in para 10, he names the total tenant’s capital as being £730,014.

The expression “total tenant’s capital” can only mean (and does, in the sense in which it is used in the case, mean) the capital sum required for the conduct of

the undertaking. The amount of it cannot be affected by considering the sources from which it is, or can be, provided. It is immutably fixed by the finding

that that sum is required to work the business. Yet, in the same sentence in which the total tenant’s capital is said to be £730,014, the recorder says that, for

the purpose of applying the 12 1/2 per cent, which in his view the facts justify, the £730,014 is to be taken as being £663,703. But of two things one—either

£730,014 or £663,703—is right; and if one is right, the other must be wrong. The capital sum required cannot possibly vary with the particular tenant, and to

assume that it can must be wrong. Whether that is by reason of a mistake of law, or of fact, is another question.

No doubt the recorder’s ultimate figure can be arrived at either by applying 12 1/2 per cent to £663,703 and allowing the interest actually paid on the

difference between that sum and £730,014 as a working expense, as the recorder has done; or by applying some less percentage than 12 1/2 per cent to the

capital assumed to be employed. In other words, he might have found that not 12 1/2 per cent but some lower percentage was appropriate in this case. There

is nothing in the profits basis which fixes 12 1/2 per cent, or any other percentage, as the tenant’s share, but we think that, whatever be the proper percentage, it

must be applied to the whole of the capital which the tenant is assumed to put into the business; because, otherwise, in the same breath one is saying either that

the capital, fixed as right, is wrong, or that the percentage, fixed as right, is wrong. The recorder found himself in that dilemma. He had to choose one or

other of those two alternatives, either of them wrong according to his own findings, 􀂭 386􀀉 and he chose the former. He has explained why he did so, so there

is no need to speculate. It was not because any less sum than £730,014 was needed in the business, but because the tenant could lay his hands upon part of that

sum by paying less than 12 1/2 per cent for it. If that was a relevant consideration in arriving at the amount which the tenant would require to put into the

business, then a conclusion of fact would have been arrived at without any mistake in law. But, in our view, to give effect to irrelevant facts involves a

mistake of law: see Port of London Authority v Assessment Committee of Orsett Union, per Lord Birkenhead LC ([1920] AC 273, at pp 281, 282). We also

think the source from which, and the price at which, a tenant can get his capital, has no bearing upon what amount is required.

We, therefore, are of opinion that the question propounded for us by this case is a question of law, and should be answered in the negative. This view

seems to us, incidentally, to tally with the good sense of the matter. The funds, the existence of which have been allowed to increase the rateable value of the

hereditaments, are in the hands of trustees who may invest them, (no doubt within limitations which have nothing to do with this case) as they please, and lend

them to the tenants of the undertaking, or not, at their discretion, in accordance with the rules governing the fund as stated in the case. The tenant cannot

borrow from them as of right and they are no inherent element in the undertaking, such as is the right to levy a “deficiency rate,” or a compulsory sinking

fund. We do not know, because there is no finding to that effect, that the same facilities would be available to any other tenant, though there may be reason to

suppose that, if making the balances available to the tenant is going to increase the amount which the tenant has to pay in rates, the tenant may find it better

not to borrow, or the trustees not to lend.

Appeal allowed with costs. Leave to appeal to the Court of Appeal granted.

Solicitors: Blyth, Dutton & Co (for the company); Sharpe, Pritchard & Co agents for E Taberner, Town Clerk, Croydon (for the rating authority).

C StJ Nicholson Esq Barrister.

[1946] 1 All ER 387