Act: Haddow QC; Brodies LLP

Alt: Clarke QC; Solicitor, Glasgow City Council

19 November 2013

Introduction

[1] In each of these cases the ratepayers appealed against the values entered in the roll at the 2005 Revaluation for their retail premises in Sauchiehall Street, Glasgow. The appeals were taken on the ground that there had been a material change of circumstances that had reduced each of the values appealed against.

[2] The appeals were heard by the Glasgow Valuation Appeal Committee on 9 February 2011. The ratepayers' case was that the valuations had been reduced in consequence of three main factors, namely the impact of certain out of town shopping centres, the decline of Sauchiehall Street as a retail location and the economic crisis of 2008 and thereafter. The assessor's case was that there had been no reduction at all.

[3] The Committee found in favour of the ratepayers. It found that a combination of events consisting of the opening of out of town shopping centres, the economic downturn, the withdrawal from the market place of various traders and the expansion and improvement of the St Enoch Centre brought about a material change of circumstances affecting rental values in virtually all retail premises within the principal trading sections of Sauchiehall Street (First stated case, paras 14 and 17). It directed that the values in the roll should be altered with effect from 1 April 2009 in accordance with the ratepayers' proposed Zone A rates (Ass for Glasgow v Schuh Ltd 2012 SLT 903, at para [21]). The altered values represented a reduction of the order of 30%.

[4] The assessor appealed to this Court. We held that only the economic crisis constituted a relevant material change of circumstances in terms of section 3(4) of the Local Government (Scotland) Act 1975 and that the Committee should have allowed reductions only to the extent that they were caused by it. We therefore sustained the appeal and returned the case to the Committee to rehear the appeals and to make a decision on them in accordance with the conclusions that I had expressed in my opinion in that case (Ass for Glasgow v Schuh Ltd, supra, at para [57]).

[5] At the rehearing on 7 January 2013 the ratepayers' witness Mr Rogan, on further consideration in the light of our decision, expressed the view that the Committee should grant reductions to the levels sought at the original hearing because the whole amount of those reductions was attributable to the abnormal economic crisis (Precognition, paras 1.5, 1.9). The ratepayers' witness Mr Reith dealt with the same question by saying that in his opinion at least 90% of the downturn in rents on Sauchiehall Street had been caused by the economic crisis (Precognition, p 3).

[6] The assessor's witness, Mr Adams, adhered to the view that there had been no reduction in rental value at all; but submitted that if the Committee were to hold that such a reduction had occurred, it should be of the order of only 6.66%.

[7] The Committee allowed the appeals, but only to the extent of reducing the valuations by 6.66%.

[8] This case has been stated at the request of the ratepayers. They appeal against the decision on the ground that the Committee should have granted the full reduction that they sought. The assessor has cross-appealed on the ground that the Committee should not have allowed any reduction.

The Committee's findings and conclusions

[9] The Committee made detailed findings on various retail subjects in the relevant location, mostly in relation to new lettings, lease renewals and rent reviews in the years 2007 to 2010. It found that the evidence showed a mixed picture. Some rents had increased. Some rents, however, had decreased from the prevailing Zone A rates. The lettings showed an inconsistent pattern. Notwithstanding the existence of some evidence to the contrary, there had been a fall in the value of units in Sauchiehall Street, but where there had been a fall in rental value resulting from normal manifestations of the free retail market or resulting from a fluctuation in the economy, that fall could not be said to constitute a material change of circumstances. There was no comparison evidence from which a valuer could disaggregate the impact of the economic downturn from other factors which might have a bearing on rental value or movements in rental value.

[10] The Committee found that openings of the shopping centres at Braehead and Glasgow Fort, in 1999 and 2004 respectively, could not be said to be material changes of circumstances affecting value since they had been in existence at the date on which the valuation roll came into effect. The Committee's overall findings and conclusions were as follows.

"(25) The Committee found that when the evidence was looked at in its totality, there was some support for the position that there had been a fall in value in the units in Sauchiehall Street which might be related to increased footfall at the shopping centres outwith Glasgow but might also be linked to some extent with the decline in demand for units which must inevitably occur where a number of major retailers, such as Woolworths have gone into administration. However, there was expert opinion evidence accepted by the Committee, in particular from Mr Reith and Mr Rogan, that established that any continuing effect of recent out of town shopping centres by 1 April 2009 was very minor in comparison with the effect of the economic downturn and the reduced demand for units. There had been no evidence of material reductions of rental levels in Sauchiehall Street or in other shopping areas in Glasgow in 2008 consequent on the opening of Silverburn the previous year.

(26) The Committee considered the ratepayers' agreed summary of rental evidence in production B which indicated a material fall in rental values. The Committee found that the economic downturn was a main cause but not the sole cause of the falls in rental values. The Committee accepted that this constituted a material change. The Committee also considered the summary of rental evidence led by the assessor with additional notes and Appendix 1 (comparison of average rents). In column 3 of Appendix 1 the Assessor excluded from the rental analysis those rental transactions which appeared to have special circumstances attached to them. The remaining evidence supported the offer of the assessor to reduce the net annual value of the subjects under appeal by 6.6% (in the case of the subjects with a Zone A rate of £1500). Applying this reduction to all the subjects the Committee found that the Zone A rate of £1600 should be amended to £1490; the Zone A rate of £1500 should be amended to £1400; the Zone A rate of £1300 should be amended to £1210; and the Zone A rate of £850 should be amended to £790."

The Committee's reasons

[11] The Committee's statement of reasons repeated, and to a limited extent, elaborated on what was said in its decision letter. The Committee found that there had been a decline in rental values and that this was caused, in part, by abnormal economic conditions of a kind that qualified as a material change in circumstances. It repeated that the ratepayers' case had "not been made out" and that there was "merit in the alternative approach" of the assessor's witness.

Submissions for the parties
[12] Counsel for the appellants presented this appeal on two grounds, namely (1) that this court should resile from its previous decision in this case and decide instead that any change in rental value in an intermediate year, whatever the cause, was per se a material change of circumstances, except where it was trivial; and (2) that the court should accordingly restore the original decision of the Committee.

[13] The assessor opposed the appeals and maintained the cross appeal on the grounds (1) that there had been no proof of any material change of circumstances; and therefore that the court should recall the decision of the Committee and adhere to the values entered in the roll; failing which (2) that the Court should adhere to the decision of the Committee and refuse the appeals.

Statutory provisions: the 1975 Act

[14] In its original form section 37(1) of the Local Government (Scotland) Act 1975 provided that a material change of circumstances

"means in relation to any lands and heritages a change of circumstances affecting their value and, without prejudice to the foregoing generality, includes any alteration in such lands and heritages and any relevant decision of the Lands Valuation Appeal Court or the Valuation Appeal Committee for the valuation area in which the lands and heritages are situated, but does not include a change in the rent of the said or any other lands and heritages or any change in the general level of valuations or in the values of lands and heritages situated in the area of a particular rating authority."

[15] Section 20 of the Rating and Valuation (Amendment) (Scotland) Act amended this provision, so far as is relevant to these appeals, by deleting from it the words that I have italicised.

White Paper and Parliamentary debates

[16] The appellants, in support of an argument based on Pepper v Hart ([1993] AC 593), contend that the meaning of the 1984 amendment is to be discerned from the White Paper that preceded it (Valuation and Rating in Scotland: Proposals for Reform, 1983, Cmnd 9018) and certain ministerial statements made during the passage of the 1984 legislation. In particular, they rely, in terms, on the following statement of the Solicitor General in a debate in the First Scottish Standing Committee in which he said of the italicised words that I have quoted:

"It is these words that have hitherto prevented rateable values being altered between revaluations as a result of movements in rents or values. This has helped to preserve the freezing of relative values as they were at revaluation ... Since few rents actually drop in cash terms, the removal of the words to which I have referred to will affect a distinct minority of ratepayers, but for them it will be very important indeed. Great injustices can be perpetuated where rents have dropped against a rising trend. This is perhaps most likely for a sector of commerce or industry facing a slump. The rates burdens remain high, while all other factors confirm that the activities for which the relevant property is designed are in decline. In future, this absolute drop in rental levels will constitute a material change of circumstances allowing a reduction in rateable value. This will be of obvious direct benefit to those small classes of property where we have heard of widespread drops in actual rents. A prominent example of this in recent times in Scotland has been in relation to warehouses. It may possibly also help others for whom rents are assessed by reference to a feature of the relevant business or activity, where that has fallen away - for example, if there were a lowering in the volume of trade. But some caution is required and - to adopt a line that has already been used - the facts and circumstances of each case must be carefully considered" (HC Deb, 13 March 1984, col 1147).

Conclusions

Reversal of our previous decision

[17] Counsel for the appellants submitted that it is open to this Court to reconsider and, if so advised, to change any of its previous decisions. I accept that the Court has that power (Usher v Ass for Roxburghshire 1915 SC 768; Ass for Glasgow v Watson 1920 SC 517); but it is plainly a power to be exercised only in the most compelling circumstances. In my view, it is improbable that this court would change a decision on a point of law made at an earlier stage in the same case. In effect, counsel for the appellants has simply asked for a re-hearing on a point that has been decided against the appellants. That is not a good reason why we should reconsider our previous decision. Counsel suggested to us that in some unspecified way he had not had a proper opportunity to argue the point at the hearing of the previous appeal. The history of the case shows that the point arose because in his submissions to the Committee at the first hearing, he had proposed the same interpretation of section 3(4) that he now seeks to re-argue (Ass for Glasgow v Schuh, supra, at paras [42]-[43]) and because in due course he proceeded on the same basis at the hearing of the assessor's appeal.

[18] In my view, it is unnecessary for us to consider this point further because I am satisfied that our previous decision was sound in law.

Material change of circumstances

[19] Counsel submitted that on a true interpretation of the section, aided by reference to the parliamentary statements, any proven fall in rental value, which was not de minimis, constituted a material change of circumstances, whatever the cause of it may have been. This submission is a gross over-statement, in my view.

[20] In its original wording, the statutory definition specifically excluded any fall in rental value from the scope of a material change of circumstances. The purpose and effect of the 1984 amendment was simply to make it possible for the ratepayer to rely upon an occurrence of that kind in support of a case based on a material change of circumstances.

[21] The true principle is that while a material change of circumstances may now consist of a fall in rental value, not every fall in rental value constitutes a material change of circumstances. That is a simple conclusion based on a logical interpretation of the definition in its original and its amended form. There is no ambiguity or uncertainty that would require us to resort to Pepper v Hart (supra).

[22] The system of quinquennial revaluation is based on the principle that subjects entered in the roll at a revaluation will remain at the same value until the next revaluation, unless a material change of circumstances occurs in the interim. In reality, the rental values of commercial subjects of all kinds may fluctuate constantly throughout the quinquennium. The submission for the appellants, if sound, would apply to all lands and heritages that are entered in the roll. If every downward fluctuation, whatever the cause, constituted a material change of circumstances, the whole basis of quinquennial revaluation would be undermined. The quinquennium would consist of an endless series of material change appeals relating to all kinds of lands and heritages.

[23] The valuation date at which the assessor fixes new values of lands and heritages for the next revaluation always falls within the existing quinquennium. The logical consequence of the argument of counsel for the ratepayers would be that where the new value was less than that entered in the current roll, that would amount to a material change of circumstances affecting the existing value. We rejected that idea in Ass for Dunbartonshire and Argyll & Bute v Akram and Ali (2012 SC 235) and I see no reason to depart from that decision.

The Committee's conclusion
[24] The Committee was faced with two opposing interpretations of the available rental evidence. It reached the decision that there had been a material change of circumstances, and therefore that section 3(4) fell to be applied in the ratepayers' favour; but it preferred the evidence for the assessor as to the extent of the impact of the material change. It was accepted on both sides that the calculation of that impact was not capable of precise mathematical assessment. Nevertheless, since it had been found that there was a material change of circumstances in relation to the subjects, that is to say a change "affecting their value" (cf 1975 Act, s 37(1)), some allowance had to be made. The Committee chose to prefer the evidence for the assessor on this question. In my opinion it committed no error of law in so doing. The decision on that question was pre-eminently one for the Committee. I can see no reason why we should interfere with it.

The cross appeal
[25] The assessor could succeed in the cross-appeal only if he satisfied us that there was no material change of circumstances. The submission for the assessor is plainly unsustainable in the light of the Committee's finding (26) (supra). In the event the point was not strenuously pressed by counsel for the assessor.

Disposal
[26] I propose to your Ladyship and to your Lordship that we should refuse the appeal and the cross appeal and affirm the decision of the Committee.

Act: Haddow QC; Brodies LLP

Alt: Clarke QC; Solicitor, Glasgow City Council

19 November 2013

[27] For the reasons given by your Lordship in the Chair I agree that the appeal and the cross-appeal should be refused and the decision of the Committee affirmed.

Act: Haddow QC; Brodies LLP

Alt: Clarke QC; Solicitor, Glasgow City Council

19 November 2013

[28] For the reasons given by your Lordship in the Chair, I agree that we should refuse the appeal and the cross appeal and affirm the decision of the Committee.

[29] I also concur that there would require to be a compelling case for this court to depart from one of its previous decisions, particularly where the decision to be reviewed is very recent and involved the same parties. For my part, I have no difficulty in concluding that there is no such compelling case here.

[30] In any event, I agree with your Lordship in the Chair that the court's previous decision was sound in law. Despite the apparent width of the definition of material change of circumstances in s. 37(1), this court has recognised on a number of occasions that the expression ought not to be given an unrestricted meaning (see the authorities discussed in Armour on Valuation for Rating (5^th ed.), para. 3-16). A degree of purposive construction is required. In my opinion it is plain that Parliament did not intend that every downward fluctuation in rent, whatever the cause, should constitute a material change of circumstances. That would be an absurd result. A distinction requires to be drawn between the ordinary processes of change affecting rental values in the intermediate years between revaluations, and material changes of circumstances affecting value within the meaning of s. 3(4) (Assessor for Glasgow v Schuh Ltd 2012 SLT 903, at paragraphs [30]-[34]). Reductions in rental levels which are attributable to the former are not material changes. They do not fall within the ambit of the subsection. On the other hand, reductions in rents not caused by such ordinary processes of change, but caused by extraordinary or exceptional factors such as an abnormal economic crisis, do fall within its purview and may be material changes of circumstances.