Rossendale Borough Council v Hurstwood properties (A) Ltd

Rossendale Borough Council and Wigan Council are appealing against a decision of the Court of Appeal to strike out their claims for non-domestic rates against various companies in the Hurstwood Group and Property Alliance Group Ltd. The appellants allege that the respondents have used a scheme involving the use of special purpose vehicles (SPVs) to avoid liability for business rates on unoccupied commercial properties. The respondents have argued that the leases granted to the SPVs make the SPVs the "owners" of the properties for the purpose of the liability for business rates, or alternatively, that the separate legal personality of the SPVs should be disregarded.

The central question in these appeals is whether the schemes employed by the respondents are effective to make the SPVs the owners of the properties for the purpose of the liability for business rates. The Court of Appeal decided that the claims should be struck out because the leases were effective to make the SPVs the owners of the properties, and because there was no principle which would justify "piercing the corporate veil" to hold the respondents liable for the rates.

The Supreme Court has allowed the appeals and set aside the order of the judge in so far as he struck out the claims that, on the proper interpretation of sections 45 and 65(1) of the 1988 Act, the leases were ineffective to make the SPVs the owners of the relevant properties, with the result that the respondents remained liable for business rates. The Court of Appeal's decision to strike out the claims based on "piercing the corporate veil" has been left undisturbed.

The Supreme Court has concluded that, on the assumed facts, the SPVs to which leases were granted as part of the schemes did not become "entitled to possession" of the demised property for the purposes of the 1988 Act. The SPVs had no real or practical control over whether the property was occupied or not, and such control remained at all times with the respondents. The Court has held that the definition of the "owner" in section 65(1) of the 1988 Act is to be interpreted as denoting in a normal case the person who as a matter of the law of real property has the immediate legal right to actual physical possession of the relevant property. However, in the unusual circumstances of this case, identifying "the person entitled to possession" as the person with the immediate legal right to possession would defeat the purpose of the legislation. The Court has held that Parliament cannot sensibly be taken to have intended that "the person entitled to possession" of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates.

The Supreme Court has also held that the attempt by the local authorities to "pierce the corporate veil" is wholly misplaced. The Court has concluded that there is no principle which could justify piercing the corporate veil on the assumed facts of this case, as the interposition of the SPVs did not evade or frustrate the law, but rather caused a liability for business rates to be incurred by the SPVs by granting them a lease. The Court has held that the abuse in the present case lies in the way in which the SPVs' liability for rates is then sought to be dealt with, by the abusive processes by which the SPVs are either dissolved or put into liquidation. The law provides comprehensive remedies for abusive behaviour of that kind, which do not require the piercing of any corporate veil.