We all love a good Ramsay case. Particularly one from the Supreme Court which does not upset the apple cart and require a re-learning of principles! And one in which HMRC is not involved makes for an interesting change.
Hurstwood Properties v Rossendale Borough Council involves a business rates avoidance scheme. Where non-domestic property is unoccupied, business rates are charged on the owner, subject to certain exceptions. The "owner" is defined in the relevant legislation as the “person entitled to possession of the property”.
The defendants in this case (and landlords in 55 other similar cases for which this one is a test case), had each leased their unoccupied properties to special purpose companies (SPVs) which did not have any assets or any actual or intended business. The SPVs were then either immediately put in member’s voluntary liquidation or dissolved. Both versions of the scheme relied on the SPVs being the “person entitled to possession of the property” under the legislation but then not actually being able to pay the business rates. The schemes were designed solely to enable the defendants to avoid liability for business rates.
The issue before the Supreme Court was whether the defendants were still liable to pay business rates for periods when they leased their unoccupied properties to the SPVs. Either because the lease to the SPV was ineffective to make the SPV the “owner” of the unoccupied property within the meaning of the legislation (the Ramsay point). Or alternatively, because the separate legal personality of the SPV should itself be ignored for this purpose (the piercing the corporate veil point).
The Court of Appeal had held that the corporate veil could not be pierced to disregard the SPV, and the Supreme Court agreed. What is of interest to me, however, is the different approach to Ramsay (purposive construction) taken by the Supreme Court from the Court of Appeal.
The Court of Appeal had held that the existence of the leases to the SPVs could not be disregarded under the Ramsay principle. Henderson LJ’s reasoning, with whom the other judges agreed, was that the concept of entitlement to possession in the legislation is an “intrinsically legal one” which meant that the legislation was not amenable to a wider, purposive interpretation that would allow scope for the Ramsay approach to operate.
But the Supreme Court disagreed that the Ramsay approach required the existence of leases to be disregarded in the way that prior cases have ignored an intermediate element in a circular transaction. Rather, the Supreme Court closely examined the leases in their context and concluded, by looking at the purpose of the legislation (discouraging owners from leaving properties unoccupied) and applying it to the facts, that the leases did not, in fact, transfer to the SPVs the entitlement to possession required by the legislation as a badge of ownership. The purpose of the charge is to incentivise owners of unoccupied premises to bring them back into use and the burden of the business rates is accordingly focused on the person who has the ability, in the real world, to do that. The “person entitled to possession” should properly be construed as the person with a real and practical entitlement to either occupy the property in question, or to confer a right to its occupation on someone else.
So, this round went to the local authority, but it is only the beginning of the case. The Supreme Court's decision confirms that there is a triable issue whether the defendants remained liable for business rates throughout the duration of the leases and that those claims by Rossendale Borough Council and another local authority should not be struck out. So we must now wait for the trial of that issue.
Our conclusion is based squarely and solely on a purposive interpretation of the relevant statutory provisions and an analysis of the facts in the light of the provisions so construed.