Rossendale Borough Council v Hurstwood Properties (A) Ltd

The Supreme Court considered whether short leases granted to single-purpose companies (SPVs) as part of schemes to avoid liability for non-domestic (business) rates made those SPVs the "owner" of unoccupied hereditaments for the purposes of section 45 and the definition of "owner" in section 65(1) of the Local Government Finance Act 1988. Applying a purposive (Ramsay-type) approach to statutory construction, the Court held that the words "person entitled to possession" in section 65(1) must be read as requiring a real and practical entitlement to possession (the ability either to occupy or to put someone else into occupation), and do not extend to companies vested with legal title solely to frustrate the statutory charging scheme.

On the agreed facts (the SPVs had no assets or business, the leases were granted solely to avoid rates, the practical control of letting remained with the landlords, and the SPVs were intended to be dissolved or put into liquidation and thereby stripped of any practical ability to occupy), the SPVs were not "entitled to possession" for the purposes of the Act. The Court therefore held that the landlords remained the owners for rating purposes and that the particulars of claim raising that case should not be struck out. The Court also rejected the local authorities' alternative contention that the corporate veil should be pierced by application of the "evasion principle": there was no scope on the assumed facts to convert a liability incurred by the company into a liability of the controller.

Background and parties.

• The appellants were two local authorities (Rossendale Borough Council and Wigan Council). The respondents were various companies in the Hurstwood group and Property Alliance Group Ltd, registered owners of unoccupied commercial properties.
• The respondents had granted short leases of empty properties to SPVs created by promoters; the SPVs had no assets or business. The SPVs were then either dissolved or placed into members' voluntary liquidation so as to avoid business rates.

Procedural history. The local authorities brought representative test claims seeking unpaid business rates. At first instance the judge struck out the part of the particulars of claim that relied on the leases being ineffective but refused to strike out the alternative pleading that sought to pierce the corporate veil ([2017] EWHC 3461 (Ch)). The Court of Appeal struck out all claims ([2019] EWCA Civ 364). The local authorities appealed to the Supreme Court.

Nature of the claim and issues.

• The principal issue was statutory: whether a lessee-SPV given a lease by a landlord as part of a pre-planned scheme to avoid rates becomes the "owner" of the unoccupied hereditament for the purposes of section 45 of the Local Government Finance Act 1988, read with the definition of "owner" in section 65(1).
• The local authorities advanced (i) a purposive/Ramsay-style interpretation of the rating legislation to treat the arrangements in context and disregard steps that subverted the statutory purpose, and (ii) an alternative argument that the corporate veil should be pierced by application of the "evasion principle" (Prest).

Court's reasoning.

• The Court applied the modern purposive approach (Ramsay line) to identify the class of cases intended to be caught by the charging provision and then to ask whether the assumed facts fall within that class. The legislative purpose of empty-property rating — to deter owners leaving property vacant and to encourage bringing it back into use — informed the interpretation of "person entitled to possession".
• The Court concluded that "entitled to possession" must be given a practical meaning: it denotes a real and practical entitlement which includes the ability to occupy or to confer occupation on others. A legal entitlement conferred solely to avoid rates, where the grantee has no practical ability to exercise possession and the grantor retains effective control of letting, does not satisfy that test.
• Accordingly, on the agreed facts the SPVs did not become the owners for rating purposes and the landlords remained liable for rates; the claims based on that construction should not have been struck out.
• On the alternative submitted piercing argument, the Court held that the "evasion principle" could not properly be used to impose upon the controller of a company a fresh liability for liabilities incurred only by the company; the attempted reverse operation of the principle was misplaced and in any event unnecessary given other remedies for abuse of dissolution and liquidation processes.

Other points and wider context. The Court noted that the liquidation variant of the schemes had already been found abusive in In re PAG Management Services Ltd and that the dissolution variant may involve statutory and criminal breaches (Companies Act 2006 notification offences) on the assumed facts. The Court emphasised that its conclusion rested on purposive interpretation and the facts assumed for strike-out purposes, not on characterising the leases as shams.

Appeal allowed. The Supreme Court held that, on a purposive construction of section 45 read with section 65(1) of the Local Government Finance Act 1988, an SPV vested with a legal entitlement to possession solely as part of a pre-planned scheme to avoid rates, where it has no real or practical ability to occupy or put others into occupation and the landlord retains practical control, is not "the person entitled to possession" for rating purposes; the landlord therefore remains liable. The Court rejected the attempt to pierce the corporate veil on the assumed facts as unavailable and unnecessary.

This appeal came from the Court of Appeal decision Hurstwood Properties v Rossendale Borough Council [2019] EWCA Civ 364, which had affirmed the strike-out of the claims; at first instance the judge was Judge Hodge QC ([2017] EWHC 3461 (Ch)). The Supreme Court allowed the appeal ([2021] UKSC 16).