OPINION

J D Wetherspoon plc (Appellants)
v
City Assessor, Glasgow City Council (Respondent)

Licensed premises: The Crystal Palace, 36 Jamaica Street, Glasgow and 8 others

Introduction

[1] This is an appeal under section 1(3BA) of the Lands Tribunal Act 1949 against the decision of the Argyll & Bute, Dunbartonshire and Glasgow Valuation Appeal Committee (“the VAC”) not to refer to the Tribunal nine appeals. There are nine subjects consisting of large licensed premises operated by the appellants located for the most part in the centre of Glasgow.

[2] The Assessor has valued the premises for the purposes of the 2017 revaluation by means of Practice Note 19 issued by the Scottish Assessors Association (“PN19”). PN19 values licensed premises by means of applying a percentage to adjusted hypothetical achievable turnover (“HAT”). It recommends that 8.5% is applied to all levels of turnover, but where there exists local evidence/ material factors sufficient to merit a variation, a rate between 6% and 8.5% may be applied. We understood the Assessor to have applied the full rate to the actual turnover of all the subjects in question.

[3] The appellants’ position is that they have a unique trading model whereby the turnover achieved within their premises is well above the HAT. Their policy increases turnover which is maintained by reducing prices and profits achieved on sales. Accordingly a valuation taking a fixed percentage to the actual turnover without discount produces a disproportionate valuation compared to valuations of subjects operated by the appellants’ competitors. The appellants’ trading pattern amounts to over-performance in the necessary sense which, they contend, entitles them to a discount.

[4] The appellants sought a referral to the Tribunal by letter dated 9 April 2019 to the local panel, founding upon heads (a), (b), (c) and (d) of Regulation 5(1) of the 1995 Regulations (see para [6] below). This was opposed by the Assessor. The VAC refused the application under each head and the appellants have appealed to the Tribunal against that decision. We held a hearing on 7 August 2019. The appellants were represented by Mr Craig Connal, QC, solicitor advocate. The Assessor was represented by Mr Geoff Clarke, QC, advocate.

[5] We decided to refuse the appeal and gave summary reasons for doing so at the hearing. We now provide written reasons.

Legislation

[6] The Valuation Appeal Committee (Procedure in Appeals under the Valuation Acts) (Scotland) Regulations 1995/572 (“the 1995 regulations”) provide as follows:

“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.”

Cases referred to in argument

J D Wetherspoon plc v Lothian Regional Assessor 2003 S.C. 400
J D Wetherspoon plc v Assessor for Highland and Western Isles Valuation Joint Board 2005 SLT (Lands Tr) 6
Assessor for Lothian v Belhaven Brewery Co Ltd 2009 SC 120
Assessor for Glasgow v Schuh Limited and Others [2012] CSIH 40
J D Wetherspoon v Assessor for Lothian Valuation Joint Board LTS/VA/2011/70 et seq; 16 January 2012
Coal Pension Properties Ltd v Assessor for Lanarkshire LTS/VA/2012/26; 6 July 2012
J D Wetherspoon v Assessor for Scottish Borders Council LTS/VA/2013/01; 22 February 2013

Submissions for appellants

[7] It was pointed out that only one of the grounds required to be made out in order for a referral to be made. In terms of paragraph (d) the appellants have a large estate of licensed properties in Scotland. A list was produced showing that there were over 20 revaluation appeals in existence in other valuation areas which had been continued by the relevant committee, presumably with agreement by the relevant assessor, thus implying some assessors believed that the Glasgow appeals could raise a fundamental or general issue likely to be used as a precedent in the other cases. The question of over-performance of the appellants licensed premises raised such an issue. It was accepted that if the appellants’ arguments turned out to be not well-founded, that could nevertheless set a precedent, albeit in favour of the Assessors.

[8] The Glasgow Assessor did not accept it was appropriate to discount the appellants’ turnovers despite being aware that these were high in context. It was therefore likely that the appellants would have to establish the validity of their contention that they have a unique trading model individually in each of their appeals. As there were appeals in different areas the need for repetitious evidence would be an unwelcome burden upon both the appellants and the respective Assessors.

[9] The appellants anticipated an argument from the Assessor that they might be, as it were, crying wolf. As mentioned in J D Wetherspoon v Assessor for Scottish Borders Council, the appellants had succeeded in referring 16 appeals to the Tribunal in 2012, all of which had settled a few weeks before the hearing. Fourteen were relevant to the present issue. Of those, 7 appeals were simply withdrawn and the other 7 settled with modest reductions. So no Tribunal decision was made as might have established a precedent. Nevertheless the present appeals were being made in good faith, and the appellants intended to proceed with all the cases.

[10] Turning to head (c) it was submitted that there was uncertainty over the applicable law and, in particular, the law was difficult to apply. Reference was made to LVAC cases J D Wetherspoon plc v Lothian Regional Assessor and Assessor for Lothian v Belhaven Brewery Co Ltd in 2003 and 2009 respectively. The LVAC had provided a short statement of principle in each case, but had not set out the means by which the appellants might establish over performance. In practice the law was difficult to apply. One should not lose sight of the fact that at the end of the day the methodology was intended to find the hypothetical rental value. It was accepted that head (c) had not been argued before the Tribunal in J D Wetherspoon v Assessor for Lothian in 2012.

[11] Reference was made to the VOA guide for England and Wales for the valuation of public houses under the 2017 rating lists. This contained more elaborate guidance than PN19 and recommended a graded approach to “over-trading” public houses. It could be seen that where circumstances justified, over-trading public houses in primary areas could have drinks turnover discounted by up to 25%. South of the border the principle of over-trading was more readily recognised.

[12] Turning to the issue of complexity under heads (a) and (b) it would be necessary in order to make a case of over-performance to present evidence of trading models, accounting evidence, pricing policy and its application to particular items, turnover figures, all before considering comparables. There would be market research evidence.

[13] In response to questions by the Tribunal as to the methodology which would be applied in advancing the over-performance case, the appellants did not wish to get in to the merits of the case or into the detail as to their surveying evidence. The evidence would establish, however, that if the appellants were to trade from a rival’s premises, the turnover would be higher than the rival’s. As a general proposition there would be evidence as to the scale of the impact of the appellants’ trading policy, the valuation process and the making of appropriate comparisons with other subjects. If over-performance was established, it would follow that a figure for end allowance would have to be established, as was the case in the 2003 LVAC case. Such an approach could be applied across the board, thus setting a precedent, but perhaps with a different figure depending on circumstances pertaining in different localities. It was accepted that at some point in the calculation it would be necessary to look to local factors, but nine tenths of the exercise would have been carried out before looking to local factors. It would be difficult to find comparables. It was not known what evidence the VAC had for making an end allowance of 10% in the 2003 case.

Assessor’s submissions

[14] The Assessor pointed out that there were other large operators of licensed premises, but all their cases had been settled in Glasgow except for those brought by the present appellants. There were also cases involving diverse types of operation in the licensed trade, but the method of valuation based upon turnover was still regarded as the best method. Examples were given of recent committee decisions where committees had refused to discount the relevant percentage being applied to actual turnover.

[15] By way of background the Assessor had considered a cross appeal to the VAC’s finding of a 10% end allowance in the 2003 case, but this was not pursued for pragmatic reasons.

[16] The point was taken that if there were complex accounting arguments to be made, no detailed accounting information had been shown to the Assessor in support of the appellants’ position. This was the case for the 2012 remitted appeals and it was now over two years since the 2017 roll had been brought into effect. No particular matter of precedent or universal guidance had been identified.

[17] PN19 was an attempt to harmonise the approach to valuation, but it only went so far and, in respect of the over-performance issue, the scheme relied upon Scottish case law. The appeals could be safely left to the Glasgow VAC, which had already dealt with cases arguing for a discount to turnover.

Discussion by Tribunal

[18] The general principles for modifying a turnover approach on account of over-performance are not in doubt. The turnover requires to be abnormally high for a reason which would not influence the parties to the hypothetical letting. This may be the case if an abnormally high turnover is generated by abnormally low prices and margins: Assessor for Lothian v Belhaven Brewery Co Ltd paragraph [10].

[19] The appellants succeeded in establishing over performance before the VAC in J D Wetherspoon plc v Lothian Regional Assessor in 2003. There was no dispute that over-performance existed where a commercial strategy of trading on low margins achieved a turnover which was out of line with the general run of turnover of the competitors. The appellants had been able to satisfy the committee that there was over performance at the appeal subjects at least partly on the basis of generic UK evidence: paras [6] and [11]. As such cases are dealing with individual subjects, albeit as part of a large chain, it is still necessary, we think, to show that over-performance exists at the relevant appeal subjects in relation to competing subjects in the same locality: c/f paras [11], [16], [19] and [20] of the 2003 case. The appellants had succeeded in being given an end allowance of 10% but had been unable to establish greater discounts by means of alternative valuations based upon certain comparison evidence in those proceedings.

[20] The case for a remit requires to be determined as a matter of impression. Turning to head (d), which we consider first, we are prepared to accept that in principle, one appeal by the present ratepayers can establish a precedent in respect of other appeals by the same ratepayers. As the appellants are said to have a unique trading pattern, it would not seem possible to apply a decision to cases involving parties other than the present appellants, but in our opinion that does not prevent a precedent being established for the purpose of the Regulations.

[21] As to what may amount to a precedent, we would adopt our approach that it is necessary for the appellants to identify a distinct issue with an appreciable bearing on valuation practice: see J D Wetherspoon plc v Highland Assessor at p7D.

[22] It seems to us that if the appellants had been able to specify some particular or evolving methodology by which they maintain they could establish over-performance, and avoid the reasons for the failure of their alternative valuations in the 2003 appeal, then such a methodology might well be said to have an appreciable bearing on valuation practice. However, we were not given a very clear idea as to what sort of approach the appellants intend to take. None appears to have been detailed in the submission to the VAC, or, as far as we can tell, in the 2012 appeals.

[23] Nevertheless our impression is that the tenor of the approach would probably be similar to the approach in the 2003 case to the extent of seeking to establish the applicants’ own trading patterns and that of competitors on a generic basis. It seems to us that any conclusion on this matter will only take the appellants so far, and not as far as the appellants suggest. A critical part of the methodology would appear to be the comparison of the appellants’ trading pattern with those of its competitors at a local level, and the isolation of all possible factors relevant to a subject’s turnover. We understood it to be accepted that at this point in the methodology there would be some form of analysis of local conditions explaining why the appellants’ subjects might perform better than others, leaving an implication that difference in turnover can be explained only by the appellants’ unique trading model. But it seems to us that this important part of the equation can only be tested on a case-by-case basis, with regard to local trading conditions, and that an experienced local VAC is well placed to assess the exercise. In these circumstances we are not persuaded that whatever approach the Tribunal might take in the appeals, they would do more than help “throw light” on the proper approach for other cases: c/f Assessor for Highland, op cit.

[24] Turning to the remaining heads, namely (a), (b) and (c) again we do not have a very clear idea or illustration as to the methodology and evidence which the appellants propose to deploy. The cases will no doubt involve a certain amount of accounting information, market research and analyses of local trading factors, but as a matter of impression we are unable to conclude for the purposes of (a) and (b) that there will be undue complexity of fact or opinion evidence. It was not suggested that hearings would be abnormally lengthy. The case law is clear on matters of principle, and although it does not specify in detail the means by which over-performance may be established, the only particular difficulty in applying the law which was suggested to us concerned comparable evidence. This point was not however developed or illustrated so we were not persuaded that head (c) should apply. So we conclude that we are not satisfied that any of the above heads is applicable.

[25] For the foregoing reasons the appeal is refused.

Postscript

After the hearing but before the issuing of these reasons our clerk received a communication from the appellants’ agents. This was to the effect that they had not been given the opportunity to respond to representations on behalf of the Assessor that the Assessor had not received comparisons from the appellants and had not been aware how the appellants had approached their alternative valuations. These statements were said to be incorrect in that comparison evidence had been provided and that there had been detailed discussion with the Assessor as to the appellants’ approach to valuation.

The Assessor responded by accepting that the appellants had supplied comparisons, and had discussed appeals with the appellants. But the Assessor’s submission had been in the context of his not being supplied with evidence as to the appellants’ business model or the business models of the premises used as comparisons, and he stood by that submission.

We should say that we had not been aware of the appellants’ seeking to respond to anything that had been said by the Assessor during the hearing, and had any request been made for a reply we would, of course, have entertained it. We were conscious at the hearing of the Assessors’ underlying written submission to the effect that no detailed explanation or evidence had been provided to him to justify the appellants’ amended value, and that no particular challenge was made to this statement at the hearing. No such detailed explanation or evidence was shown to us. As it transpires, we do not think our decision would have been any different had the appellants made the points they mention in a reply at the hearing.


Certified a true copy of the statement of reasons for the decision of the Lands Tribunal for Scotland intimated to parties on 7 August 2019

Neil M Tainsh – Clerk to the Tribunal