Rossendale Borough Council v Hurstwood Properties (A) Ltd & Ors

A valid lease transfers the immediate legal right to possession of an unoccupied hereditament and therefore transfers liability for national non-domestic rates under sections 45 and 65 of the Local Government Finance Act 1988. The parties’ tax-avoidance purpose, the artificiality of the arrangement and the absence of commercial features do not alter that legal consequence where the lease is not a sham.

The Ramsay principle is a matter of statutory construction and cannot be used merely because a transaction is pre-ordained or commercially artificial. Nor can the corporate veil be pierced where the liability avoided was not an existing liability of the controller but arose only after the company became entitled to possession. The claims were therefore struck out.

Local authorities sought national non-domestic rates from property owners after the owners granted leases of unoccupied properties to assetless special purpose vehicle companies. The schemes contemplated the companies’ liquidation or dissolution, engaging the exception for certain companies under regulation 4(k) of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008.

On applications under CPR 3.4(2)(a), HH Judge Hodge QC struck out the Ramsay claims but allowed the corporate-veil claims to proceed. The owners appealed on piercing the corporate veil; the local authorities cross-appealed on Ramsay. The central questions were whether the corporate veil was arguably pierceable and whether the leases could be disregarded by purposive statutory construction.

Appeals allowed in part and dismissed in part. The defendants’ appeals on piercing the corporate veil were allowed. The local authorities’ appeals on the Ramsay issue were dismissed. The proceedings were struck out in their entirety.

1. The SPVs were duly incorporated companies. Under sections 15 and 16 of the Companies Act 2006, their certificates of incorporation were conclusive evidence of registration and incorporation created separate legal persons. They could not be treated as nullities or ineffective merely because they lacked commercial purpose. Reversal of incorporation required an order quashing the registration, as illustrated by R v Registrar of Companies, ex parte Attorney General.
2. Under the evasion principle identified in Prest v Petrodel Resources Ltd, the corporate veil may be pierced only where a person is already subject to an existing legal obligation or restriction and deliberately evades or frustrates it by interposing a controlled company. National non-domestic rates accrued day by day. Once a valid lease was granted, the SPV alone became liable for each day of the term. The defendants therefore had no existing liability which the leases evaded. The doctrine could not be extended to these rate-avoidance schemes, which were neither rare nor novel and did not involve the SPVs being engines of fraud or taking unconscionable advantage.
3. Henderson LJ held that the Ramsay principle is a question of statutory construction. Sections 45(1)(b) and 65(1) of the Local Government Finance Act 1988 impose liability on the person with the immediate legal right to possession. A valid lease necessarily grants exclusive possession for a term and transfers that right, and therefore the statutory ownership condition, immediately on execution. Its purpose, pre-ordained structure, absence of rent collection or usual provisions, and lack of commercial use could not displace that legal meaning.
4. The statutory scheme was not amenable to a wider purposive construction. The cases were analogous to MacNiven v Westmoreland Investments Ltd and Barclays Mercantile Business Finance Ltd v Mawson, where legal effects satisfying the statutory language were not disregarded merely because transactions were circular or tax-motivated. The wider Ramsay argument rejected in UBS AG v Revenue and Customs Commissioners was likewise inapplicable.

1. Court of Appeal (Civil Division): In [2019] EWCA Civ 364, the defendants’ appeals on piercing the corporate veil were allowed and the local authorities’ appeals on the Ramsay issue were dismissed. The proceedings were struck out in their entirety.
2. High Court of Justice, Chancery Division: HH Judge Hodge QC, sitting as a Judge of the High Court, struck out the Ramsay claims but allowed the corporate-veil claims to proceed: [2017] EWHC 3461 (Ch).