Coventry and Solihull Waste Disposal Co Ltd v Russell

Under article 3(2)(a)(ii) of the Electricity Generators (Rateable Values) Order 1989, use in connection with a combined heat and power scheme must itself be the primary function of the hereditament. A merely ancillary connection between the hereditament’s primary function and such a scheme does not qualify.

The provision must be construed in its statutory and legislative context. The formula is intended to value hereditaments whose primary function is electricity generation or the operation of a combined heat and power scheme. It does not extend to a hereditament principally used for another purpose merely because that activity supplies energy to an ancillary scheme.

The appellant operated a waste-reduction unit whose primary function was the destruction of refuse by incineration. The hereditament also produced heat and, following alterations, electricity for sale. Its generating plant had a declared net capacity of 11.4 megawatts.

The Valuation Tribunal retained separate assessments and substantially upheld a valuation based on the contractor’s method. The Lands Tribunal merged the plant and pipeline into one hereditament and applied the formula in the Electricity Generators (Rateable Values) Order 1989. The Court of Appeal unanimously upheld the merger but, by a majority, held that the formula did not apply.

The sole issue before the House was whether the hereditament satisfied article 3(2)(a)(ii), specifically whether its primary function was “in connection with” a scheme for producing electrical power and heat for sale.

1. Appeal dismissed unanimously. Lord Hope of Craighead and Lord Clyde delivered substantive speeches. Lord Steyn agreed with Lord Hope; Lord Cooke of Thorndon and Lord Millett agreed with both Lord Hope and Lord Clyde.

2. Per Lord Hope, article 3(2)(a)(ii) of the Electricity Generators (Rateable Values) Order 1989 requires use in connection with a combined heat and power scheme to be the primary function of the hereditament. The 1991 amendment replaced a requirement for mere use or availability with the words “its primary function is”. It thereby introduced a more restrictive test. The appellant’s construction gave insufficient effect to that change and would have made the amended provision virtually indistinguishable from its predecessor.

3. Per Lord Clyde, the paragraph defines the qualifying primary function rather than merely describing a connection between an independently identified function and a scheme. The primary function of the whole hereditament must be to serve the combined heat and power scheme. It is insufficient that a scheme is ancillary to a hereditament primarily devoted to another activity.

4. The statutory context supported that construction. The formula measures value by reference to electricity-generating capacity. Applying it to a refuse-disposal hereditament whose generating scheme was ancillary would omit a substantial part of the value attributable to its primary function. It would also produce the illogical result that an ancillary scheme might qualify while a hereditament principally operated as such a scheme might not.

5. Lord Hope held that the expression “in connection with” is protean and draws its meaning from the surrounding language. Replacing it mechanically with “having to do with” did not resolve the present ambiguity. The wording, legislative history and practical consequences favoured the respondent’s construction.

6. Lord Hope further considered that an explanatory note may assist in construing an ambiguous statutory instrument and identifying the mischief addressed, although it is not part of the instrument. The note to the 1991 amendment supported the respondent, but Lord Hope’s conclusion did not depend on it. Since refuse destruction remained the hereditament’s primary function, the formula did not apply and the agreed rateable value was £928,500.

1. House of Lords: Dismissed the ratepayer’s appeal unanimously and affirmed the Court of Appeal’s conclusion that the formula in the Electricity Generators (Rateable Values) Order 1989 did not apply.

2. Court of Appeal: Unanimously affirmed that the plant and pipeline formed one hereditament. By a majority, Robert Walker LJ dissenting, it allowed the valuation officer’s appeal on the valuation method and held that the 1989 Order did not apply.

3. Lands Tribunal: Allowed the ratepayer’s appeal, merged the two entries into one hereditament and valued it by the statutory formula.

4. Coventry and Solihull Valuation Tribunal: Declined to merge the assessments, left the pipeline valuation unchanged and made a small reduction to the contractor’s-method valuation of the refuse destructor.