The respondent companies granted leases for unoccupied commercial properties to special purpose vehicles (SPVs) they had set up. The SPVs had no assets or business. The companies did not intend to collect the rent from the SPVs.
Pursuant to the leases, the SPVs had the legal right to possession of the properties. The companies intended that this would mean the SPVs would be the “owners” of the properties under section 65(1) of the Local Government Finance Act 1988 (1988 Act), which defines “owner” as "person entitled to possession of it". Subject to certain conditions, section 45 of the 1988 Act states that "owners" of unoccupied business properties are required to pay non-domestic (business) rates (rates). Therefore, the companies' intentions were that after they granted the leases, the SPVs would be liable for the rates.
After granting the leases, the companies dissolved or liquidated the SPVs. Liability for the rates accumulated unpaid until the SPV was dissolved, following which the further accruing liability would be incurred by the Crown until the Crown disclaimed the leases and the liability was extinguished, or if liquidated the SPV would be exempt from payment under regulation 4(k) of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 (2008 Regulations)). The liquidation / dissolution process was then artificially prolonged (sometimes by years) to maintain the existence of the SPVs and consequently, the companies avoidance of liability to pay the rates. The schemes have been branded an abuse of process, and in some cases are likely to have involved breaches of director’s duties and the commission of criminal offences by those directors.
The local authorities issued a claim for the unpaid rates, as two test cases representative of 55 similar cases valued between a few thousand to several million pounds. The local authorities claimed that they could recover the unpaid rates from the companies because:
- the leases to the SPVs did not make the SPVs the “owner” of the unoccupied property under the 1988 Act, applying WT Ramsay Ltd v Inland Revenue Comrs  AC 300 (Ramsay) (ground 1 - statutory interpretation), or
- the companies interposed SPVs solely to avoid rates liability which would have otherwise been the companies’ liability and that this was an abuse of the separate legal personality of the SPV which justified “piercing the corporate veil”, relying on Prest v Petrodel Resources Ltd  UKSC 34 (Prest) (ground 2 - piercing the corporate veil).
The companies applied to the High Court to have the local authorities’ claims struck out. The High Court agreed with the companies on ground 1 – statutory interpretation, but not on ground 2 - piercing the corporate veil. On appeal, the Court of Appeal agreed with the companies on both grounds and struck out the local authorities’ claims. The local authorities appealed to the Supreme Court on both points.
Supreme Court Judgment
In its judgment of 14 May 2021, the Supreme Court unanimously allowed the local authorities’ appeal and set aside the order to strike out the claim on ground 1 – statutory interpretation, but upheld the Court of Appeal’s decision on ground 2 – piercing the corporate veil. Lord Briggs and Lord Leggatt gave a joint judgment, with which Lord Reed, Lord Hodge, and Lord Kitchin agreed with.
Reasoning behind supreme court judgment
Ground 1 - Statutory interpretation
The Supreme Court confirmed that the Ramsay approach is to read the statute as a whole in its historical context and interpret the statute to give effect to Parliament’s purpose (so far as is possible).
The Supreme Court confirmed that the purpose of the rates provided for in the 1988 Act was to deter the entity who has control over the occupation of the property, from leaving the property unoccupied and provide an incentive for them to bring the property back into use for the benefit of the community. The Supreme Court confirmed that the exemptions in the 2008 Regulations are there to exclude properties where the entity who has control over the property has a valid reason for being unable to fulfil that objective.
The Supreme Court held that:
- the SPVs had no control over whether the property was left unoccupied (no human or monetary resources nor any business that such an activity would form a part of) and consequently had no real or practical ability to exercise its legal right to possession. Consequently, on proper interpretation of section 65(1) of the 1988 Act (applying Ramsay), the SPVs did not become “entitled to possession” and were not the “owners”;
- if the companies found a tenant or acquired a use for the property, it could terminate the leases, and consequently the companies had sole control over whether the property was left unoccupied. Consequently, on proper interpretation of section 65(1) of the 1988 Act (applying Ramsay), the companies retained “entitl[ment] to possession” and continued to be the “owners” under the 1988 Act.
Therefore, the Supreme Court held there was a triable issue whether the companies remained liable for the rates throughout the duration of the leases and the local authorities’ claim should not be struck out.
Ground 2 - Piercing the corporate veil
The Supreme Court held that in light of its view on the first ground, this second ground fell away. In any event, the Supreme Court held that there was no principle that would justify piercing the corporate veil on these facts.
If your organisation has been affected by any of the above issues and requires support and/or advice, please contact Virginia Cooper.