|Judgments - Coventry and Solihull Waste Disposal Company Limited v. Russell (Valuation Officer)
In the present case, for example, the appellant's witness told the Lands Tribunal that the major part of the floor area on site was taken up by the waste reduction unit. Two thirds of the respondent's valuation on the contractor's method was represented by the refuse destruction plant. The effect of applying the formula would be that a substantial part of the value of the hereditament which was attributable to its primary function of waste reduction would be left out of account in the local non-domestic rating list. It is difficult to believe that this was the intention of the amendment. The purpose of the valuation system in the context of non-domestic rating is to ensure, so far as possible, that the same level of value is maintained throughout the list in order to achieve fairness as between all non-domestic ratepayers. Where the Secretary of State prescribes the use of a formula for determining the rateable value of a non-domestic hereditament it is to be assumed that his intention is to provide a simple and convenient method of arriving at a fair valuation, in that context, of the entire hereditament.
The second point which tells heavily against the appellant's construction is that it would allow those hereditaments whose primary function is other than their use in connection with a CHP scheme to benefit from the formula while depriving those hereditaments whose primary function was their use in connection with such a scheme of that benefit. The respondent's interpretation provides the more logical result. Those hereditaments whose primary function was their use in connection with such a scheme would be valued by means of the formula, while those whose primary function was their use for some other purpose would continue to be valued by the contractor's method. Miss Williamson was unable to provide a convincing explanation for the result which would follow from her argument. She said that the requirement that there must be a scheme for the production for sale of both electrical power and heat was sufficient to ensure that the connection between the primary function and the scheme would have to be a very substantial one. But any system which is designed to enable both electrical power and heat to be produced for sale, however small and however insignificant in relation to the primary function of the hereditament, will be capable of being described as a scheme within the ordinary meaning of that word. She drew our attention to the provisions of the Order which extended the benefit of the formula to hereditaments whose generating plant used wind, tidal or water power as its primary source of energy irrespective of the declared net capacity of the generator. It is clear that one of the purposes of the Order was to encourage the generation of electricity by the use of renewable sources of energy. But that feature of the Order does not explain why a hereditament whose primary function is its use in connection with a CHP scheme and whose primary source of energy is the burning of refuse should have to satisfy the much larger threshold of declared net capacity in paragraph (ii) of article 3(2)(b), while one whose primary use is something quite different but to which a CHP scheme was an ancillary is to be accorded the benefit of the much lower threshold set by paragraph (iii).
The majority in the Court of Appeal held that it was a sufficient answer to the appellant's argument to construe the words "in connection with" as meaning "having to do with". This explanation of the meaning of the phrase was given by McFarlane J in Re Nanaimo Community Hotel Limited  4 D.L.R. 638. It was adopted by Somervell L.J. in Johnson v. Johnson  P. 47, 50-51. It may be that in some contexts the substitution of the words "having to do with" will solve the entire problem which is created by the use of the words "in connection with." But I am not, with respect, satisfied that it does so in this case, and Mr. Holgate did not rely on this solution to the difficulty. As he said, the phrase is a protean one which tends to draw its meaning from the words which surround it. In this case it is the surrounding words, when taken together with the words used in the 1991 Amending Order and its wider context, which provide the best guide to a sensible solution of the problem which has been created by the ambiguity.
In the Court of Appeal both Robert Walker L.J. and Hobhouse L.J. declined to attach any importance to the Explanatory Note which was attached to the 1991 Amending Order. But Waller L.J. said that it supported the view which he took which was favourable to the respondent's argument. In my opinion an explanatory note may be referred to as an aid to construction where the statutory instrument to which it is attached is ambiguous. In Pickstone v. Freemans Plc  A.C. 66, 127A Lord Oliver of Aylmerton said that the explanatory note attached to a statutory instrument, although it was not of course part of the instrument, could be used to identify the mischief which it was attempting to remedy. The problem in this case is that the Explanatory Note is itself ambiguous, because of similar inconsistencies in its use of language to those which appear in the Order which it seeks to explain. But the explanation which it gives for the amendment to paragraph (ii) of article 3(2)(a) is a simple one, and it seems to me to be perfectly intelligible. This is that its purpose is to secure that the rateable values of hereditaments are to be determined in accordance with the Order, in the case of a hereditament comprising an electricity generator used in connection with a CHP scheme, "only if such use is the primary function of the hereditament." I agree with Waller L.J. that this explanation supports the respondent's interpretation of the effect of the amendment. It lends no support at all to the appellant's interpretation. But in any event, for the other reasons which I have given, I consider that the balance of the argument strongly favours the respondent's interpretation as being the correct one.
I would dismiss the appeal.
This appeal concerns the valuation of a hereditament occupied by the appellant ratepayer. In 1990 there were two separate entries in the non-domestic rating list compiled by the respondent, the local Valuation Officer. One (Assessment No. 13007) was for what was described as "Refuse Destructor and Premises." The other, (Assessment No. 15215) was for "Pipeline and Appurtenances." Until 1993 the former subjects comprised plant which not only incinerated waste materials brought to the site by local authorities and others but also a heat transfer station whereby water could be heated and then transferred by pipes to provide heat for a nearby factory, now occupied by Peugeot. Between 1992 and 1993 certain structural changes were made to the premises. An electricity generating plant and associated equipment was installed. The electricity was generated by a turbine driven by steam piped from the boilers of the incinerator plant. The electricity was then sold to the local distribution network. The final shape of the plant thus consisted of an incinerator which disposed of rubbish material and at the same time provided both steam power to drive the turbine and hot water which was passed to and returned from the Peugeot factory, providing warmth for those premises.
In November 1993 the respondent made a proposal to alter Assessment No. 13007 to reflect the changes which had been effected. Apart from the matter of value which is at the heart of the present appeal, the description for that assessment was proposed to be "Refuse Destructor, Power Generation Plant and Premises." The appellant then made two proposals one of which was that the two assessments should be merged into one. That proposal was rejected by the local tribunal but approved by the Lands Tribunal. The Court of Appeal adhered to the decision of the Lands Tribunal on that issue and the matter has not been opened up before this House. I only mention it because it appears to have been treated as a second issue after the first question which raised the issue of the method of valuation, and that seems to me to have been incorrect. The first issue to be resolved in any matter of valuation for rating is the identification of the hereditament. Before one can resolve any question about the valuation one must first know what it is one is to value. It is now clear that the plant and the pipelines all formed a unum quid and should be treated as one hereditament; but that question should logically and practically precede the question how they are to be valued. In terms of the order of the Lands Tribunal the description of the hereditament is now "Refuse Destructor, Power Generation Plant and pipeline with appurtenant premises."
The problem in the present appeal is whether the hereditament is to be subject to a formula valuation, in which event the rateable value would be £146,034, or a valuation on the contractor's principle, in which case the rateable value would be £928,500. The formula valuation is contained in the Electricity Generators (Rateable Values) Order 1989 (S.I. 1989 No. 2474) and the question in the appeal is whether that Order applies to the hereditament, as the Lands Tribunal held it did, or does not apply, as was held by the majority of the Court of Appeal.
Article 3 of the Order provides as follows:
The scope of the present dispute is narrowed to a question of the construction of one element in these conditions, namely article 3(2)(a)(ii). As regards article 3(2)(a) it is agreed that the hereditament is used or available for use for the purposes of generating electricity. It is also accepted that it does not qualify under head (a)(i). It would qualify under head (a)(iii) but a difficulty then arises regarding paragraph (2)(b). Head (i) of that paragraph does not apply and accordingly the declared net capacity of the hereditament becomes relevant. In the present case that is agreed to be 11.4 megawatts. While that would satisfy head (b)(iii) the appellants cannot invoke that head unless they can exclude themselves from head (b)(ii). In that connection they cannot show that paragraph (a)(i) applies and so in order to succeed they have to show that they fall within paragraph (a)(ii). It is in this way that the construction of article 3(2)(a)(ii) becomes critical. As regards the ingredients of paragraph (a)(ii) the Lands Tribunal have found as matter of fact that the "primary function" of the hereditament is the destruction of refuse by incineration. It is agreed that the arrangements made for producing and selling heat and power amount to a "scheme for the production for sale of both electrical power and heat", otherwise known as a CHP scheme. What remains is the construction of the words "is in connection with." The appellant submits that on a proper construction of the paragraph the primary function, the incineration of waste, is in connection with the CHP scheme. The substance of the respondent's submission is that the paragraph only applies where in effect the primary function is the implementation of a CHP scheme.
The appellant's approach identifies two elements in the paragraph, the function and the scheme, the one being connected with the other. The respondent's approach identifies the scheme as the primary function. On the one view the paragraph can be construed as comprising a synthetic, or descriptive, proposition. The paragraph is saying that whatever the primary function may be it is required to be of the stated description in order to qualify. That is the view proposed by the appellant. On the alternative construction the paragraph is to be seen as of an analytic, or definitive, character. On that approach the paragraph is defining what the primary function has to be in order for it to qualify. That is the construction put forward by the respondent.
I have come to the conclusion that the respondent's construction is to be preferred. I have not taken particular account of the Explanatory Note to the latest amending order and I have reached my conclusion essentially for the following five reasons.
I turn in the first place to the language used in the paragraph. To substitute for the words "is in connection with" the words "having to do with," a course which commended itself to the Court of Appeal, does not seem to me to advance the matter. The close similarity of meaning between the two expressions does not seem to me to support a departure from the conclusion at which the Lands Tribunal arrived, that the primary function had a connection with the CHP scheme. I find it more helpful to see if the paragraph can support the two elements which on the appellant's approach it is said to contain. Certainly it could be said that the function of the incinerator was to serve the CHP scheme. But the paragraph requires that consideration be given to the function, not of the incinerator, but of the hereditament as a whole. On the approach favoured by the appellant that function has to be in connection with something else, and one might expect that that something else would be something other than the hereditament. But the connection has to be with the scheme and the scheme is being carried on in at least part of the hereditament itself. I find it difficult to regard the scheme as a second element with which the function of the whole hereditament is connected. Content must certainly be found for the words "in connection with". They cannot be altogether ignored. But I consider that they can reasonably be taken to express a relationship between the function and scheme without requiring that they be two distinct elements. The phrase "in connection with" may reasonably be used to express a relationship of support, or service. In the context of agricultural derating in W. & J.B. Eastwood Ltd. v. Herrod (Valuation Officer)  A.C. 160 the phrase was construed as matter of ordinary usage as reflecting a relationship where one thing is subsidiary to or ancillary to another, and a like understanding of the phrase should be appropriate in the context of another piece of rating legislation such as the present Order. The language of the paragraph is far from elegant, but in my view this construction gives a reasonably coherent meaning to it. What the paragraph requires is that the primary function of the hereditament must be to serve a CHP scheme. The paragraph is defining, not describing, the primary function.
In the second place, the paragraph clearly intends that hereditaments used for the purposes of certain CHP schemes should have the benefit of the formula valuation. If the primary function of the hereditament was the operation of a CHP scheme it would fail to meet paragraph (i), and on the appellant's approach it would also fail to meet paragraph (ii). On their requirement for the identification of two elements it would have to be said that the operation of the scheme was in connection with the operation of a scheme, which makes no sense. The hereditament could fall under head (iii). But the effect of this would be that such a hereditament would only qualify if its primary source of energy was the burning of refuse and if it possessed the large declared net capacity of 25 megawatts. It is unlikely that the intention of the Order was to exclude CHP schemes where the primary source of energy was fossil fuels and where the capacity fell below 25 megawatts. It would be also curious if a hereditament used for a CHP scheme could qualify if the scheme was an adjunct of the primary function of the hereditament, but not if it was the principle function.
Thirdly, the history of the legislation seems to me to support the respondent's construction. Throughout its successive amendments the Order has applied a formula valuation to certain hereditaments not shown in the central rating list which are used or available for use for the purposes of generating electricity. The original version of the Order applied only where the generating plant had a declared net capacity of 500 kilowatts or more or used wind or water power as its primary source of energy. The formula involved the application of a stated sum per megawatt of the declared net capacity, with the rate being halved where the primary source of energy was wind power. The Order was then amended in 1990 by The Gas and Electricity Industries (Rateable Values) (Amendment) Order 1990. (S.I. 1990 No. 804) This amendment re-designed the layout of article 3(2), introducing the two paragraphs (a) and (b) which the article currently possesses. Two of the purposes of this amending Order are relevant to the present case. One of these was to include CHP schemes. It did that by requiring that the hereditament, used or available for use for the purposes of generating electricity, was "so used or available in connection with a scheme for the production for sale of both electrical power and heat." That formulation was defining was the use of the hereditament. This was later amended by The Electricity Industry (Rateable Values)(Amendment) Order 1991 (S.I. 1991 No.959) by substituting "its primary function" for the words "it is so used or available." That imposed a restriction upon the scope of the provision. Any degree of use for a CHP scheme would not now suffice. But there is no reason to suppose that the paragraph was not still intended to be looking at the use to which the hereditament was put and to the definition of that use. The other of the two particular purposes of the amending Order was to introduce provision for cases where the primary source of energy was the burning of refuse. It did that by introducing what was, and still is, paragraph (a)(iii) and by providing, as paragraph (b)(ii), that the generating plant, "if its primary source of energy is the burning of refuse, has a declared net capacity of 25 megawatts or more." The effect of that was to exclude generating stations of a lower capacity fuelled by the burning of refuse. The 1991 Order amended paragraph (b)(ii) by excluding from it cases where paragraph (a)(i) or (ii) applied. There is nothing to suggest that the intention was to do more than benefit hereditaments solely or primarily used for the generation of electricity or the conduct of CHP schemes.
Consideration of the history of the legislation leads on to the fourth matter, which is a consideration of the purpose and intention of the legislation. I have not found clear guidance here in the empowering provisions and it is only from the Order itself that some assistance can be gleaned. Here it seems that the focus is fixed upon the generation of electricity, with account also being taken of CHP schemes. The Order seeks to provide a simple and direct method of the valuation of electricity generating stations which do not fall into the central rating list. I find nothing to support the contention of the appellant that the purpose of the Order was to encourage the harnessing of the process of waste disposal into the economic production of electricity and heat. While notice is taken of the incineration of refuse as a source of power, such a form of waste disposal appears only as a means to the end of electricity generation or the running of a CHP scheme and not as an intended beneficiary of the Order in its own right. I find nothing in the Order which reflects an intention to discourage the use of fossil fuels or to promote the use of waste incineration as a means of generating electricity or operating CHP schemes. The requirement of the high level of capacity expressly required in paragraph (b)(ii) where refuse burning is the primary source of energy tends to point away from such a intention.
The respondent founded in this connection on the fact that the formula proceeds upon a consideration of the declared net capacity of the generating plant. This may be seen as an indication that the hereditaments which are intended to benefit from the Order are hereditaments whose primary function is the production of electricity, either by itself or in the course of a CHP scheme. The method of valuation used reflects the value of the hereditament in so far as it is productive of electricity and does not reflect the element of waste disposal which the present plant also achieves. It is, of course, a feature of any valuation based solely upon output or reached solely by reference to revenue or profits that it ignores any detailed consideration of the physical composition of the hereditament. But such a method may well produce a more realistic estimate of rental value than can be achieved through the artificialities of the contractor's test. The figure to be applied to the net capacity in the formula adopted in the present Order is evidently applied also in the valuation of larger power stations. A uniformity of levels of value may thereby be obtained even although the valuation may not necessarily reflect the result of a profits based valuation. Indeed I understood that the figure used in the formula may have been derived from valuations made on the contractor's test. But however, that may be, the point made by the respondent has some force in pointing to the intention of the legislation. While, as the appellant pointed out, the formula takes no account of the production of heat, that may only add emphasis to the fact that it is with the production of electricity that the Order is principally concerned. At the least the exclusion of the output of heat from the formula does not lead to the conclusion that promotion of the incineration of refuse as a means of fuelling CHP schemes played any important part in the legislative intention.
Finally, the construction adopted by the appellant seems to me to involve if not an unwelcome degree of uncertainty in the construction of the provision, at least an undue width in its application. Not only does it require a decision to be made upon the primary function of the hereditament and the existence of a CHP scheme, but it calls for what could be a nice question about the sufficiency of the connection between them in the particular circumstances of each case. It then opens the way to the admission of any hereditament, used for any purpose, which has some connection with a CHP scheme. That takes the possible application of the Order far beyond what appears to be the intended scope of its application, namely the valuation of electricity generating stations.
For the foregoing reasons I would dismiss the appeal.