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Supreme Court backs Iceland in refrigeration rates appeal

An air handling system used in connection with frozen foods retailer Iceland's refrigerated storage is part of a 'trade process', and therefore exempt from business rates, the UK's highest court has ruled.08 Mar 2018

The unanimous decision from the Supreme Court reverses the findings of both the Upper Tribunal and the Court of Appeal. Both of these had held that business rates should be calculated on the full value of the retail warehouse in which the air handling system is housed.

The case was interesting both because of its implications for businesses operating similar facilities and for the fact that the Supreme Court had overturned the decisions of the lower courts, according to property disputes expert Stuart McCann of Pinsent Masons, the law firm behind Out-Law.com.

"This is clearly an important result for Iceland, as well as others in the retail sector who operate similar integral refrigerated cabinets in their businesses," he said. "It will be interesting to see if other retailers, not necessarily dealing in specialist refrigerated goods, seek to extend the principles set by the Supreme Court to the air handling systems in their businesses."

"A more general point is that this decision is a further example of the Supreme Court not following the decisions of the lower courts. If ratepayers really believe in the merits of their case, they might take those recent decisions into consideration and be more inclined to go all the way to the Supreme Court," he said.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Premises are assigned a rateable value by the Valuation Office, part of HM Revenue and Customs (HMRC), which is used by the local authority to calculate how much the occupier of that property should pay.

As a general rule, plant and machinery that forms part of the property cannot be taken into account when calculating the property's rateable value. The 2000 Valuation for Rating (Plant and Machinery) (England) Regulations create an exemption from this general rule for plant and machinery that, broadly speaking, can fairly be described as part of the 'tools of the trade' of the business, rather than as part of the property. The exemption dates back to the Wood Report of 1993, which was commissioned by the government to update and harmonise the law and practice around the rating of plant and machinery.

Iceland had challenged a valuation officer's decision not to grant it any reduction in rateable value to reflect its use of an air handling system to keep cool the refrigeration units at what the court described as a "typical" retail warehouse in Liverpool. Both the Upper Tribunal and the Court of Appeal had held that the exemption in the regulations should be interpreted "quite narrowly". It was the view of these courts that the exemption was designed to cover manufacturing and other activities that "bring about a transition from one state or condition to another" rather than, as in this case, keeping goods in a suitable condition to be offered for sale.

The Supreme Court disagreed. It found that there was nothing in either the regulations, or the report on which they were based, limiting the use of the exemption to industrial-type activities at the expense of other types of commercial activity. Rather, the emphasis of the report was on "the principle of fairness between ratepayers", which was "regarded as 'of paramount importance' for the political credibility of the 'business rating system'," Lord Carnwath said in his judgment.

"The key distinction lies in the main use to which the services are put: in connection with the hereditament [rateable property], or with the processes within it," he said.

"In my view, there is nothing in the word 'process' itself which implies a transition or change … A 'trade process' is simply a process (in that wide sense) carried on for the purposes of a trade ... In the context of Iceland's trade, the word is apt to cover 'the continuous freezing or refrigeration of goods to preserve them in an artificial condition'. Since the services provided by the relevant plant have been held to be used 'mainly or exclusively' as part of that trade process, they should be left out of account for rating purposes," he said.