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The court had to look at whether an air handling system, used in connection with refrigeration units, should be taken into account when calculating Iceland's liability for rates.
TLT acted for Iceland, who successfully argued that the continuous freezing or refrigeration of goods to preserve them in an artificial condition is a "trade process" and therefore Iceland's air handling system being "used mainly for that purpose should be left out of account for rating purposes".
The refrigerated cabinets in which Iceland displays its products for sale emit heat. Therefore, in order to maintain the temperature in the store at an acceptable level for staff and customers, and also to ensure that the refrigeration equipment operates efficiently, a cooling system is required. It was this air handling system that was at issue in the case.
The Valuation for Rating (Plant and Machinery) (England) Regulations 2000 (the 2000 Regulations) provide that plant or machinery which "is used or intended to be used in connection with services mainly or exclusively as part of manufacturing operations or trade processes" should not be taken into account in assessing the rateable value of a hereditament.
The definition of "services" means "heating, cooling, ventilating, lighting, draining or supplying of water and protection from trespass, criminal damage, theft fire or other hazard."
Iceland's view was that the air handling system was used as part of its trade processes. However, this was disputed by the Valuation Officer, who argued that the wording in the 2000 Regulations should be interpreted more narrowly.
The Upper Tribunal decided that the creation of an environment appropriate to the storage of goods could not, itself, be a trade process. Therefore, the Upper Tribunal decided that the air handling system did not fall within the exception; it formed part of the hereditament and was rateable.
The Court of Appeal agreed with the reasoning of the Upper Tribunal, commenting that normally manufacturing operations and trade processes bring about a transition from one state or condition to another. This was not the case with Iceland's air handling system. Its function was simply to enable the refrigeration units, which kept food chilled, to operate properly and the display of goods for retail sale was “the antithesis of a trade process”.
The Supreme Court disagreed with the decisions of both the Upper Tribunal and the Court of Appeal. It looked at the background to the 2000 Regulations, which were intended to implement the recommendations of the Wood Report. The authors of the Wood Report recommended "that process plant and machinery which can fairly be described as ‘tools of the trade’ should be exempt within certain limits". The question was whether the air handling system fell within this.
A parallel was drawn with air conditioning plant used in computer centres. There was evidence that from 1986 until as recently as 2009, the Valuation Office had interpreted the 2000 Regulations as excepting such air conditioning plant when calculating the rateable value of premises. To treat the air handling system in this case differently would seem incongruous.
Lord Carnwath's view was that if the draftsman had intended to limit the exemption to industrial processes, it would have been easy to do so. By including "trade processes" in addition to "manufacturing operations" the scope of the exemption was widened to include other forms of trade and their processes. His view was that: "Trade is a familiar word which naturally extends to Iceland's retail activities" and the term "trade process" covers "the continuous freezing or refrigeration of goods to preserve them in an artificial condition”.
The Supreme Court's decision that the term "trade process" should be interpreted in a wide manner and extend to retail activities restores common sense to the assessment of rates in such situations. It is a decision which should be heartening for those retailers operating in a similar manner but more generally reflects once again the Supreme Court's willingness to provide common sense clarification in a rating context.
Contributor: Alexandra Holsgrove JonesThis publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2018. Specific advice should be sought for specific cases. For more information see our terms & conditions.
07 March 2018
by Matthew Forrest
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