Valuation - Contractor's basis - Use of Guidance Notes - Allowance for equivalent modern substitute - Interpretation of "separator" and "vessel" - Applicability to slugcatchers - Use of unit costs or actual costs - Cost Guide - Services - Equipment used for fire protection - Equipment used for security purposes - Whether steel skirts integral part of vessel - Whether rateable - Valuation for Rating (Plant and Machinery) (Scotland) (Regulations) 1994 Class 2 (Table Two (f)); Class 4 (d); Class 4, Table 4
In assessing the value of the Gas Terminal at the ratepayers plant at St Fergus, it was agreed that the valuation should proceed on the contractor's basis of valuation and that a publication: "The Contractor's Basis of Valuation for Rating Purposes - A Guidance Note" provided proper guidance for the application of the contractor's basis. That document had been published by the Rating Forum consisting of representatives from the Royal Institution of Chartered Surveyors, the Institute of Revenues, Rating and Valuation, the Incorporated Society of Valuers and Auctioneers, the Valuation Office Agency, the Scottish Assessors Association and the Northern Ireland Valuation and Land Agency. The matters in dispute fell under four heads which we deal with in turn.
1. The first major item in issue related to the proper assessment of capital value. The ratepayers had instructed a study by skilled contractors to identify the components of a gas plant which would fully meet their purposes at said site if it was being built at the valuation date. This was referred to as "the modern substitute plant". The ratepayers sought to use this to derive allowance for adjustment of capital value. They did this by comparing the quantities involved in the modern substitute with quantities involved in the actual plant. They applied the arithmetic factors thus derived to the values assessed for the actual plant. It was not disputed that the result of this exercise, so far as rateable components of the subjects were concerned, was to base the valuation on the modern substitute rather than the actual plant. It was not contended that the actual plant had significant identifiable deficiencies. In other words no attempt was made to identify specific elements of technological or functional obsolescence. However, it was contended that as the modern substitute plant would be smaller and less expensive, this necessarily indicated an element of obsolescence in the original for which allowance should be made. As the study had provided a reliable basis of comparison, proper allowance could and should be made using the figures provided by that study. For the assessor it was contended that this was not a proper approach. That allowance would only be made where there was an identifiable deficiency or element of obsolescence in the subjects to be valued.
Held (1)(a) the method proposed represented a move from valuation of the actual subjects to valuation of hypothetical subjects. There was no justification for this either in established practice or in the Guidance Note; (b) there was no evidence of specific deficiencies and, on the contrary, evidence that the ratepayers regarded the plant as modern and efficient; (c) in applying the contractor's basis costs should normally relate to the actual property and there was nothing exceptional about the subjects as a whole justifying a move to costing a modern substitute; (d) normally positive deficiencies should be identified before adjustment to cost can be made; (e) there was no authority for an approach which started by examining the tenants essential needs and based the calculation of cost directly or indirectly on them without regard to the actual subjects; (f) on the evidence the study had not identified any deficiency which would be of relevance to a prospective tenant (g) the evidence of possible savings in running costs was not sufficient to justify any inference that the current plant was economically outmoded; (h) there was no evidence that the modern substitute plant represented what would be regarded by a hypothetical tenant as ideal; (i) even if the modern substitute plant assessed by the study was indeed the ideal plant for an occupier, to allow the substitute approach to allow assessment of the ideal instead of the existing, would give an advantage to ratepayers assessed on the contractor's basis as most valuation for rating is on a comparative basis without regard to suitability for a particular tenant; (j) valuation for rating must not lose its pragmatic approach; an assessor could be expected to consider evidence of identifiable deficiencies but could not be expected to put in hand a complete hypothetical study.
2. There was a dispute as to whether the "slugcatcher" fell within the class of plant prescribed as falling within the definition "lands and heritages" under the provisions of the Valuation for Rating (Plant and Machinery) (Scotland) Regulations 1994. This turned on whether the slugcatcher was properly within the description "separator" or "vessel" as used in Table 4 of the Regulations. The slugcatcher at St Fergus was a very substantial piece of equipment consisting of 13 parallel, 36 inch diameter steel pipes each about 273 metres long, joined at top and bottom. It played no active part in normal running operations. Its purpose was to deal with large accumulations of liquid arriving at high speed from the sub sea pipeline. Such accumulations are known as slugs and at St Fergus were very rare. The incoming flow of gas was normally in a gaseous form with comparatively little liquid present. Occasionally liquid could accumulate in such a way as to grow quickly into a large unit or " slug" travelling at high speed and with such momentum that it would overwhelm the controls of the normal primary separators. The momentum of the incoming slug would be dissipated at the inlet header of the slugcatcher. The function of the pipes was to hold the slug until it could be dealt with. For the ratepayers it was contended that this piece of equipment was essentially an emergency or safety device. It was not known as a vessel. It did not function as a separator. That term referred to equipment deliberately designed to separate discreet elements of a mixture. In the present case the separation had occurred in the pipe-line. The slugcatcher was required to deal with the separated unit. For the assessor it was contended that the expressions " vessel" and expression " separator" were properly used within the gas industry to describe slugcatchers and that these terms were in any event accurate descriptions.
The assessor had based his assessment of value of the slugcatcher on the evidence of the actual cost of its constructions in or about 1979 using a suitable index to update that figure. For the ratepayer it was contended that this was an unreliable basis and that valuation should use the professionally generated "Cost Guide" giving unit costs of typical structures including slugcatchers.
Held (a) the term "separator" in the Regulations was a technical term which required to be interpreted in light of the evidence of usage available; (b) it required to be treated as used in a broad or generic sense; (c) there was no evidence to show that the term was exclusive to the oil and gas industry; (d) having regard to the whole evidence the term should be interpreted as meaning an item of equipment, the primary function of which is to allow distinct constituents of a mixture to be treated separately; (e) the function of the slugcatcher was to allow separate components of the feedstock to be processed separately when they could not be safely be processed together; (f) the slugcatcher fell within the description of "separators"; (g) the term "vessel" was to be treated as a word of ordinary English usage and was wide enough to connote some form of respectable to receive and hold a liquid; (h) the function of the slugcatcher could be described as being to catch the liquid slug and hold it safely until it could be processed which was entirely consistent with normal usage of the term "vessel"; (i) the evidence showed that the Cost Guide was intended to be used as an authoritative tool and ratepayers were entitled to rely on it unless it was shown to be unreliable on any particular matter; (k) the bases of challenge by the assessor that the figures were not properly derived and that the slugcatcher was unique were not made out in evidence; (l) the actual cost basis was unreliable and the unit costs derived from the Cost Guide should be used as the basis for valuation of the slugcatcher.
3. The question of rateability of fire protection equipment and the security fence raised questions of interpretation of the head provision of Class 2 of the Schedule to the Valuation for Rating (Plant and Machinery) (Scotland) Regulations 1994 which provides: "Plant and machinery which is used or intended to be used mainly or exclusively in connection with services to the land or buildings of which the lands and heritages consist". The site was supplied with various pieces of equipment intended exclusively to supply water for fire protection purposes. The water would either douse flames or keep equipment cool to prevent distortion and release of further inflammatory materials. The primary purpose of the equipment was described by witnesses as being protection of personnel on site and in the neighbourhood. Protection of the heritable subjects was an insignificant factor. The security fence and related equipment was intended primarily to protect the plant, most of which did not fall within the description "lands and heritages". It was accordingly contended that the equipment did not fall within the statutory definition.
Held (a) On a proper approach to the head provision of Class 2 the test expressed as "used or intended to be used mainly or exclusively in connection with" should apply only to the question of whether a particular piece of equipment was used in connection with a service and that the description of the service as a service "to land or buildings" fell to be interpreted in a straightforward fashion by regard primarily to the physical facts; (b) a service could be described as a service to land or buildings if it was a service installed or available in, on, or at, the land or buildings; (c) accordingly the fire mains and other equipment providing water which could be used as required at point of supply fell within the class as equipment used or intended to be used mainly or exclusively in connection with the fire prevention service and was a service to the land; (d) equipment designed to supply water specifically to non-rateable plant was not included because weight had to be given to the term "lands and buildings"; (e) the site security equipment fell to be included for similar reasons.
4. Certain high pressure vessels were cylindrical in form with a semi-ellipsoidal head and base. The base rested upon the top rim of a metal "skirt" which was described as being like an open-ended steel drum. The question was whether the skirts were covered by the express exclusion of "foundations, settings, supports and anything which is not an integral part of the item" in terms of the provisions of Class 4(d) of said Regulations.
Held: the skirts were excluded as they were plainly "supports" and there was no need to consider whether a skirt could also be described as an integral part of the substantive item; observed that if a particular item was an integral part of a vessel it was questionable whether it could be described as a "support" even if it happened to provide a degree of support. However no such question arose in the present case.
See full decision: LTS/VA/1998/47