1. This is an appeal by the assessor under section 1(3BA) of the Lands Tribunal Act 1949 against the decision of the Fife Valuation Appeal Committee (“the VAC”) not to refer the ratepayers’ appeal to the Tribunal. The subjects are a biogas to grid anaerobic digester plant. The appeal relates to a new entry rateable value of £374,000 in the 2010 Roll effective from 1 April 2016.
2. A fortnight prior to the VAC hearing of 1 February 2018 proceeding, the assessor sought a referral to the Tribunal citing heads (a), (b), (c) and (d) of regulation 5 of the 1995 Regulations. The representations were brief and somewhat rhetorical, but mentioned that the subjects comprised new technology and had been valued on the contractor’s basis. The VAC refused the assessor’s application and indicated, amongst other things, that the contractor’s basis was well known to the committee. The VAC’s reasons also indicated that not enough detail had been given as to what was said to be the “complex and highly technical” issues under (a) and (b) which would require to be considered. It gave further reasons why it was unpersuaded by the other grounds for the reference. The assessor appeals against this decision.
3. The assessor was represented by Mr Steven Stuart, QC. The ratepayers were represented by Mr Christopher Haddow, QC. The hearing was held on 14 March 2018. We gave our decision at that time along with brief reasons. We were asked to provide these in writing and now do so.
“1…(3BA) The Lands Tribunal for Scotland may also determine any appeal against the decision of a valuation appeal committee not to refer to the Tribunal any appeal or complaint made to the committee and, where the Tribunal upholds such an appeal, the appeal or complaint made to the committee shall, for the purposes of this section, be regarded as having been referred by the committee to the Tribunal for determination under subsection (3A) above.”
“5.— Decision on referral to the Tribunal
(1) Where an application under regulation 4(1) has been made, and it appears to the Committee that-
(a) the facts of the case are complex or highly technical;
(b) the evidence to be given by expert opinion is complex or highly technical;
(c) the law applicable to the case is uncertain or difficult to apply;
(d) the case raises a fundamental or general issue likely to be used as a precedent in other cases; …
the Committee shall refer the appeal to the Tribunal for determination, and the secretary shall notify the parties accordingly.”
Shell UK Exploration & Production Ltd v Grampian Assessor 2000 RA 295
Ministry of Defence v Grampian Assessor 2014 SLT (Lands Tr) 44
Armour on Valuation for Rating
4. Both parties were agreed that the valuation should be undertaken by means of the contractor’s approach. The assessor had used the 2010 Rating Cost Guide which had been prepared for the Valuation Office Agency and Scottish Assessors Association for valuations on this basis. The cost guide itemises each element of building and rateable plant and applies a basic unit cost to each in order to reach an estimated replacement cost (“ERC.”) The totals are adjusted by certain well known criteria before the application of a decapitalisation rate. This has resulted in an ERC of £7,428,857 and a NAV of £374,000.
5. The ratepayers’ approach is to use the actual costs of the buildings and plant and, by means of indices, to adjust these from the date of construction (Q3 2015) to tone date April 2008. By this method the ratepayers calculated an adjusted build cost of £3,066,040 and, after applying an end allowance, a NAV of £149,000. The ratepayers have only been able to produce a limited breakdown of the actual costs since we were informed that the construction contract had been a fixed price contract. Some breakdown had however been produced by the project manager. Also, the ratepayers had evidence of two similar projects in Scotland in which a more detailed breakdown could be extrapolated.
6. The main dispute related to the cost of (1) two digester tanks, (2) the residue storage tank, (3) covered feed storage areas or silage clamps, and (4) a combined heat and power (CHP) engine for the plant.
7. The assessor’s approach was to rely upon the UK wide 2010 cost guide providing for an itemised approach. This allowed the assessor to break down each item of plant and equipment to determine if it was rateable, to apply the applicable unit costs and thus provide a consistent valuation for all ratepayers. On the other hand the ratepayers’ approach was to provide actual global costs for the works, with support from costs incurred in the construction of comparison subjects, and backdate these costs to the tone date.
8. It was the assessor’s position that without the actual costs being broken down it was impossible or at least very difficult to correlate these with the itemised cost guide figures. The cost guide approach did not work unless there was a sufficient breakdown. In order to have a proper valuation it was necessary to exclude the non-rateable items from the global figures which the ratepayers’ figures had not done. The actual costs for one of the comparison sites also failed to breakdown certain items as between rateable and non-rateable and thus suffered from the same problem.
9. It was submitted that this would result not so much in an issue of complexity of facts under (a), but complexity of expert evidence under (b) as to the appropriate approach to be made. There were also other difficult issues, namely the indexing of actual costs back to tone since it would need to be determined whether any particular indices properly related to the items in question and were thus reliable. There was also an issue as to the conversion of currency rates. The comparison contracts had been made in euros but the actual costs were incurred in pounds sterling thus the costs would be date sensitive to the conversion rate. It could be seen that payments were made at different dates thus there was a possibility of different conversion rates being applicable at different times. The case should therefore be remitted under heads (a) and particularly (b).
10. No particular comment was made upon head (c) other than the question of rateability of plant was a problem subsumed under head (b). Turning to head (d) it was observed that there were two similar subjects in Girvan and Coupar Angus respectively, presently referred to the Lands Tribunal awaiting a hearing date. One of these was a joint referral, the other was a referral by the Assessor which had been unopposed. It was understood that in both, the assessor was defending a contractor’s principle valuation.
11. The issue in this case, namely, whether the correct approach was the actual generic costs as adjusted or the cost guide unit costs would serve a useful precedent since we were dealing with a relatively new class of subjects. If the present case were not referred there would be a risk of inconsistency in decision between the VAC and the Tribunal in the other cases, with the potential of an appeal of one or other to the Lands Valuation Appeal Court. Authoritative guidance was therefore required.
12. Counsel was not aware of more than four anaerobic digester cases existing in Scotland at present. One of these was a distillery related plant in Grampian which had settled. The other two were before the Tribunal. The industry was more developed in England.
13. Counsel conceded that the cost guide, which appears to have been influenced by the cost of sewage treatment works, had been amended specifically with regard to anaerobic digestion plants. We were not given details as to when parties became aware of the amendment or when the amendment came into effect. However it was accepted that the assessment in this case was made upon the basis of the old figures. The amendment appears to be significant. For example, the price per m³ gross internal volume of concrete tanks is £218 in the unamended guide. But for digester tanks over 4,000m³ (as we understood to be the case here) the amended guide gives an all inclusive figure of £132, amounting to a difference of at least 60%. The figure is substantially less for digestate storage tanks. This means that on the assessor’s approach the existing assessment is substantially overstated and, as counsel accepted, will have to be reviewed.
14. The ratepayers opposed the appeal. Counsel referred to Armour, para 5-09C for the following propositions. Whether facts or evidence are “complex or highly technical” does not fall to be tested by the standard of the man in the street; due allowance should be given to committees which have a long history of dealing with valuation problems which would be described by the man in the street as complex and highly technical. Moreover, where facts or evidence should be capable of agreement, ground (a) is less likely to be satisfied. Turning to sub-para (d) Armour provides that the use of the terms “fundamental” and “precedent” indicate the need for the identification of a distinct issue with an appreciable bearing on valuation practice. It is not sufficient to say that the Tribunal’s approach to it might help throw light on the proper approach in other cases, or that the occupiers of other comparable subjects will take an interest in the outcome of the appeal. On the other hand where the argument is that the subjects are being valued as a new category of subjects or that an assessor is changing from a previously generally accepted method of valuation, a decision in an appeal is capable of amounting to a fundamental or general issue likely to be used as a precedent.
15. Dealing firstly with the issue of precedent under sub-paragraph (d) it was submitted that a case concerning the last year of a revaluation period was unlikely to set a precedent for future revaluations. Given the existence of two other anaerobic digester cases before the Tribunal, the instant case would not be likely be the first case heard by the Tribunal. The distillery case had already been agreed thus suggesting there was nothing inherently likely to be needed as a precedent for other cases. There was no reason why the present case should not also be agreed. Moreover, the issues in the present case were very much factual and a decision on purely factual issues was unlikely to set any form of meaningful precedent.
16. Reference was made to Shell UK Exploration & Production Ltd v Grampian Assessor where the Tribunal said:-
“The aim, however, is to ascertain the most secure basis of assessment of cost. We think it proper to take into account the underlying principle of seeking an approach which provides consistent results and fairness as between ratepayers. This was best achieved by seeking the most accurate figures as a matter of fact. If however the available evidence leaves doubt as to the reliability of the competing figures, an approach which tends to promote consistency as between ratepayers should be preferred.”
Counsel emphasised that the dispute between the use of actual costs and cost guide unit figures was therefore essentially one of fact.
17. It was further submitted that the ratepayers had put forward substantial detailed information as to their valuation, and had been and remained willing to respond to items of clarification sought by the assessor, such as, for example, queries relating to the comparison site costs. The assessor had not fully engaged with the ratepayers and, if and when this was done, there should be little or nothing left in dispute.
18. Turning to the cost guide, it could be seen very easily that the unit costs were far larger than the actual costs. For example, the cost guide applied glass reinforced plastic covers at £200 per square metre and floating membranes at £400 per square metre. Such expensive equipment was applicable to sewage works but was simply not used at the subjects as could be seen at a site visit. The type of large foundations used in the cost guide were not needed for the present subjects. The fact that the unamended cost guide was not relevant was not a difficult matter to ascertain.
19. The fact that the actual costs were not broken down into much detail did not render the forthcoming exercise before the VAC inherently difficult. Where items of plant and equipment had not been broken down in the actual costs, it would be possible to extrapolate itemised costs from the comparison site costs and apply them pro rata to the actual costs for the subjects. The fact that there was no breakdown of the actual costs was simply a function of the market in which a fixed price contract had been agreed. Whether this was a factor which rendered the actual costs less secure than the cost guide figures was something which the committee was well equipped to decide.
20. It was also submitted that the application had been a last minute one to the Tribunal against a background of the assessor not having engaged with the ratepayers until it was apparently too late to prepare for the VAC hearing.
21. The background issue here is whether the 2010 cost guide has kept up with new technology. The value brought out by the cost guide would be displaced if the evidence shows that the more recent actual costs as adjusted are more accurate. In this context it seemed to us that the main problem which counsel for the assessor emphasised as being too complex for the committee, arose from the fact that the ratepayers’ “actual” figures were not broken down into individual elements.
22. It can be observed that this particular point was not specifically made in the representations by the assessor to the committee, and in any event we think too much emphasis has been made upon it. The ratepayers have the evidence of a project manager which, we understood, goes some way to breaking down the actual costs. Moreover, there is more detail of the breakdown of actual costs of two comparable sites in Scotland, namely at St Boswells and Coupar Angus. Thus parties will be able to extrapolate in overall percentage terms a notional breakdown of the actual costs, if such an exercise is necessary. The criticism that the comparison figures do not distinguish between rateable and non-rateable plant seems to us to result in an ambiguity in the evidence which, paradoxically, will favour the assessor. If the ratepayers are unable to break the actual costs down as between rateable and non-rateable plant, then they will be producing a less favourable ceiling figure combining the cost of both types of plant. Our impression is that this sort of exercise, if it is carried out, is very much a mathematical one and similar to many which the committee will have examined in other cases. They will be able to decide for themselves whether the resultant figures are reliable or not. In this context we further note – it was not argued – that the amended cost guide provides for inclusive unit costs for the digester and storage tanks, thus requiring less of a breakdown than the old guide.
23. We should say that we were also impressed by the fact that the ratepayers had adopted a highly professional approach and made considerable efforts to produce and explain their figures and evidence to the assessor, and remained willing to do so. Assuming both parties make due case preparation and discussion before the hearing we were not left with the impression that much should remain in dispute.
24. Nor are we persuaded that the component in the ratepayers’ exercise of backdating actual costs to tone involves undue complexity. As we understood it, the debate will essentially come down to which type of cost index is the most appropriate to use for any particular item of equipment. There are also arguments as to the applicable date or dates to apply the rate of exchange from euros to sterling in respect of certain contract costs. Again neither of these issues seems to us to be too complex for an experienced committee. Nor did we understand the assessor to have adopted a position which was necessarily different to that of the ratepayers on either of these matters.
25. It was not suggested that the case was likely to involve logistical difficulties for the committee in terms of the amount of evidence or duration of the hearing. Accordingly in all the circumstances we are not persuaded to remit the case under heads (a) or (b).
26. Turning to the issue of precedent under sub-paragraph (d), we agree with senior counsel for the ratepayers that the issue in this case is very much a factual one. Whether the adjusted actual costs or the cost guide unit costs should prevail is very much a matter of seeking the most accurate figures available as a matter of fact. The present case will therefore turn on its own facts and circumstances. So although the case does involve new technology we are doubtful that it can be said to raise a “fundamental” issue or, in terms of precedent, anything more than what may be of interest to parties in other cases. We are also conscious that we are dealing with the final year of the 2010 revaluation period and we were not very clear as to how many other cases might in fact have an interest in the outcome for the 2010 revaluation. It may only be one case, which has already been remitted to the Tribunal either by agreement or without opposition.
27. In the circumstances we decided to refuse the application.
28. Counsel for the ratepayers moved for the expenses of the appeal. He referred to the passage in Armour at 5-09C in which the Tribunal had expressed its disapproval in certain similar cases. These were where appellants gave little or no justification to the committee for a referral and first set out the substantive grounds for referral in the appeal to the Tribunal. The Tribunal has indicated that it may be appropriate to impose a sanction in expenses if proper notice of a point has not been given to the Committee. Reference was made in particular to Ministry of Defence v Grampian Assessor in which the appellants had offered no reasoning whatsoever to the Committee which practice, it was concluded, appeared to be an abuse of the statutory process.
29. It was submitted that the appeal had been without any merit and, worse still, the ratepayers were paying substantially more than they should be, which was only now acknowledged by the assessor. The ratepayers were a start-up business and could not bear such excessive liabilities. Counsel also highlighted delays in the assessor dealing with the case, apparently over the Christmas period, and on the lateness of the assessor’s request for a referral.
30. Counsel for the assessor did not dispute that the Tribunal had power to award expenses in cases of appeals against a committee’s refusal to refer an appeal to the Tribunal. The provision in the Tribunal’s rules (r.28(6) preventing awards of expenses in other types of valuation appeal had not been disapplied in the present type of referral. However, it was submitted that the assessor had not acted unreasonably. The grounds of appeal to the committee were not skeletal or simply rhetorical and while being very brief, could not be subject to the same criticisms as were made in the MoD case.
31. In this case we have a good deal of sympathy for the ratepayers whom, it is now conceded, have been subject to an excessive assessment. On any view, major parts of the ratepayers’ plant and equipment have been overvalued by use of a cost guide which, it would appear, has been significantly amended. In these circumstances we would expect the assessor now to take all steps necessary to progress the case as swiftly as possible.
32. We agree that the committee was given insufficient detail in the referral request. This was most striking in those parts of the request under regulation 5(1)(a) and (b). Accordingly we did not have the benefit of the committee’s informed views as to whether there were sufficiently complex and highly technical issues as should justify a referral. As a result the committee stage in the appeal can be said to have been something of a wasted effort for all concerned. It is therefore only with some hesitation that we have decided not to make a finding in expenses for the hearing before us. We acknowledge that the grounds specified in the referral request did manage to make a relevant point that the subjects comprised new technology, which lies at the heart of the valuation problem. Although we have refused the appeal, we do not think that the appeal was unstateable in light of this fact. In other words, had the committee received full grounds of referral and been able to provide an informed opinion, an appeal against that decision might still have had a proper basis. So on this occasion we think, albeit by a narrow margin, it would be going too far to find the assessor liable for the expenses of the appeal to the Tribunal.
We refused the motion for expenses.
Certified a true copy of the statement of reasons for the decision of the Lands Tribunal for Scotland intimated to parties on 20 March 2018
Neil M Tainsh – Clerk to the Tribunal