Hurstwood Properties (A) Ltd and others v Rossendale Borough Council and another

For liability to non-domestic rates on unoccupied property, the statutory owner is normally the person with the immediate legal right to possession. In an exceptional avoidance scheme, however, the expression requires a real and practical entitlement carrying the ability to occupy the property or put another person into occupation. A lease does not transfer statutory ownership to a special purpose company which cannot exercise those attributes and exists solely to shelter the property from rates.

This conclusion follows from purposive statutory interpretation, not a free-standing rule invalidating tax-avoidance transactions. Viewing a pre-planned scheme realistically and as a whole is part of that interpretative exercise. The corporate veil cannot instead be pierced to impose on a controller a new liability which accrued only to the company.

Hurstwood Properties (A) Ltd and others v Rossendale Borough Council and another concerned test claims for unpaid non-domestic rates on unoccupied commercial properties. The respondent property owners had granted short leases to assetless special purpose companies. Under one scheme the companies were later dissolved; under the other they entered members’ voluntary liquidation and invoked the exemption for companies being wound up.

The High Court struck out the authorities’ claim that the leases had failed to transfer statutory ownership, but permitted their alternative corporate-veil case to continue: [2017] EWHC 3461 (Ch). The Court of Appeal struck out both grounds: [2019] EWCA Civ 364; [2019] 1 WLR 4567.

The issues were whether, on a purposive interpretation of the rating legislation, the special purpose companies became the owners of the properties and, alternatively, whether their separate corporate personality could be disregarded.

1. Appeal allowed in part. The local authorities had a triable case that the respondent landlords remained liable for non-domestic rates. The orders striking out that claim were set aside. The Court of Appeal’s decision striking out the alternative corporate-veil claim remained undisturbed.

2. The approach associated with WT Ramsay Ltd v Inland Revenue Comrs is an application of ordinary purposive statutory interpretation. It is not confined to tax legislation or to provisions charging transactions. The court must identify the class of facts at which the legislation is directed and then determine whether the facts, viewed realistically and in the round, answer the statutory description. A planned series of steps may be considered as a whole, although the later steps need only have been planned and actually performed, rather than certain to occur.

3. The purpose of empty-property rating was to discourage owners from leaving premises vacant for financial advantage and to encourage their return to use. Liability was therefore directed at the person with practical control over whether the property remained empty. “The person entitled to possession” in section 65(1) of the Local Government Finance Act 1988 ordinarily means the person with the immediate proprietary right to possession. In an unusual avoidance scheme, however, the expression denotes a real and practical entitlement carrying the ability to occupy the property or confer occupation on another.

4. The leases created genuine proprietary rights and were not shams. Nevertheless, the special purpose companies had no assets, personnel, business or capacity to use the premises or bring them into occupation. The landlords retained practical control through their ability to terminate the leases when an occupier or use was found. Viewed as part of the schemes as a whole, the leases did not transfer the statutory entitlement to possession, and the landlords remained the owners for sections 45 and 65(1).

   That conclusion did not rest merely on an avoidance motive or on describing the arrangements as artificial. It followed from the legislation’s purpose and a realistic application of its language. An ordinary letting to a controlled subsidiary would not fail the test merely because the parent managed the subsidiary’s affairs.

5. The alternative attempt to pierce the corporate veil was misconceived. Assuming the leases had transferred ownership, rates accrued from day to day as new liabilities of the special purpose companies. The evasion principle described in Prest v Petrodel Resources Ltd cannot create a liability for a controller where the company alone incurred it. Any abuse lay in the later misuse of dissolution or liquidation procedures, for which the law provided other remedies.

1. United Kingdom Supreme Court: The appeal was allowed in part. The court restored the claims based on the proper interpretation of sections 45 and 65(1) of the Local Government Finance Act 1988, while leaving the corporate-veil claims struck out: [2021] UKSC 16.
2. Court of Appeal: The court decided both grounds against the local authorities and struck out all the claims: [2019] EWCA Civ 364; [2019] 1 WLR 4567.
3. High Court: Judge Hodge QC struck out the statutory-interpretation claim but declined to strike out the alternative corporate-veil claim: [2017] EWHC 3461 (Ch).