Subjective Intention Inferred from Objective Facts & the Sufficiency of Brevity:
Heptagon Portfolio Arbroath Ltd v Angus Council [2025] CSOH 75

1. Introduction

This Outer House decision, delivered by Lord Lake, addresses the first substantial judicial scrutiny of the Non-Domestic Rates (Miscellaneous Anti-Avoidance Measures) (Scotland) Regulations 2023 (“the 2023 Regulations”). The petitioner, Heptagon Portfolio Arbroath Ltd (“Heptagon”), challenged Angus Council’s determination that Heptagon – rather than its £1-a-year occupiers – was liable for non-domestic rates on six retail units in the Abbeygate Centre, Arbroath. The Council relied on regulation 4(2), arguing that the leases were artificial anti-avoidance arrangements whose main purpose was to obtain a rates advantage.

Heptagon sought reduction of the Council’s decision on five public-law grounds: (1) misdirection on the need to find subjective purpose; (2) inadequacy of reasons; (3) irrational reliance on weak rental comparators; (4) procedural unfairness in late disclosure; and (5) error in construing “significantly below” market rent. Lord Lake refused the petition, thereby clarifying how Scottish local authorities may infer purpose from objective circumstances and how detailed their reasoning must be.

2. Summary of the Judgment

• The Court accepted, following Brebner and JTI Acquisition, that the main purpose test under regulation 4(2)(a) is ultimately one of subjective intention.
• However, subjective intention may and usually must be inferred from objective facts; the Council’s findings (peppercorn rent; non-commercial conduct; lack of risk transfer) sufficed.
• The explanatory letter, though brief and largely tracking the statutory language, identified enough factual conclusions to satisfy the Wordie Property criteria for adequacy of reasons.
• Assessing comparative rental evidence, weighing it, or fixing a precise open-market rent are matters for the Council, not the court; no irrationality was shown.
• No procedural unfairness arose from four-day disclosure, and any objection was waived when Heptagon proceeded without protest (Clancy v Caird applied).
• The petition was therefore refused and the Council’s third to sixth pleas-in-law sustained.

3. Analysis

3.1 Precedents Cited & Their Influence

1. Inland Revenue v Brebner [1967] 2 AC 18 – authority that “purpose” in tax avoidance context is subjective but ascertainable by inference. Lord Lake used it to accept Heptagon’s premise while still upholding the Council’s methodology.
2. JTI Acquisition Co (2011) Ltd v HMRC [2024] EWCA Civ 652 – modern restatement of the dominant-purpose test. Confirmed that the tribunal must find subjective purpose but may rely on objective indicia. Adopted by Lord Lake.
3. Tchenguiz v Director of the SFO [2013] EWHC 2297 – used by the Council to argue for purely objective assessment; distinguished by Lord Lake as a privilege case.
4. Three Rivers (No 5) [2003] QB 1556 – cited indirectly via Thanki on Privilege to show courts decide dominant purpose on evidence; supported Lord Lake’s balanced view.
5. South Buckinghamshire DC v Porter [2004] 1 WLR 1953 – sets the test for reason-giving in planning; analogised to administrative rates decisions: reasons may be brief, context matters.
6. Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374 – classic statement of irrationality; threshold not met here.
7. Clancy v Caird 2000 SC 441 – waiver of procedural objections when party proceeds with knowledge of alleged irregularity.

3.2 Legal Reasoning

Lord Lake parsed regulation 4(2) and the layered definitions in the 2020 Act, noting their obvious overlap. His reasoning proceeded in two stages matching the regulation:

a) Regulation 4(2)(a) – Purpose

• Accepted as a matter of law that subjective purpose is required.
• However, councillors may reach conclusions on subjective purpose by objective inference; requiring direct evidence of each director’s state of mind would be unworkable.
• Findings that the leases were peppercorn-rent, riskless and commercially abnormal supplied a logical inference of avoidance purpose.
• Therefore, the Council had asked the right question and answered it on legally cogent grounds.

b) Regulation 4(2)(b) – Artificiality & Non-Commercial Rent

• The Council had to be satisfied that rent was significantly below market level.
• The letter’s language (“gulf”, “significant”) showed that the statutory threshold, not a stricter “best rent” test, was applied.
• Assessing comparators is a fact-finding exercise for the decision-maker; unless perverse, the court will not intervene.
• Fixing an exact hypothetical rent is unnecessary; being satisfied that market rent exceeds £1 significantly suffices.

c) Procedural Fairness & Reasons

• Brevity is permissible if the decisive reasoning is intelligible to an informed reader.
• Omitting detailed responses to every submission does not invalidate the decision.
• Any ambush argument failed because the petitioner knew the rent issue was central, received the material, and chose to proceed.

3.3 Likely Impact on Scottish Administrative & Rating Law

1. Template for Local Authorities
   Councils can rely on strong circumstantial evidence (peppercorn rent, circular transactions) to infer avoidance purpose without interviewing directors or producing subjective testimony.
2. Reason-giving Standard Clarified
   Decision letters need not be elaborate; recitation of the statutory test plus a few salient facts will survive judicial review.
3. Judicial Deference on Valuation Judgments
   The court affirmed a hands-off stance where councils use market comparators to estimate reasonable rent. Challenges must meet the high Wednesbury irrationality threshold.
4. Anti-Avoidance Framework Strengthened
   By refusing the petition, the Court signalled support for the 2023 Regulations’ objective of curbing “phoenix” leasing or nominal-rent devices.
5. Cross-Border Persuasive Value
   Although a Scottish decision, the reasoning on inferring purpose aligns with English authorities and could influence tribunals dealing with UK-wide tax anti-avoidance rules.

4. Complex Concepts Simplified

• Non-Domestic Rates – The Scottish equivalent of business rates: a property tax on commercial premises.
• Anti-Avoidance Arrangement – Scheme whose main purpose is to reduce rates liability.
• Peppercorn Rent – A nominal rent (£1 here) used to suggest occupation without creating genuine commercial substance.
• Judicial Review – Court scrutiny of the lawfulness (not merits) of public decisions; grounds include illegality, procedural unfairness, irrationality.
• Wednesbury Irrationality – A decision so unreasonable that no reasonable public body could have reached it; a high bar for challengers.
• Subjective vs Objective Intention – The actual state of mind of the actor (subjective) versus what a reasonable observer would infer from the facts (objective). Courts often infer the former from the latter.
• Pleas-in-Law – Formal propositions of law advanced by parties in Scottish procedure; here, the Council’s third to sixth pleas were upheld.

5. Conclusion

Lord Lake’s judgment delivers two headline messages: (1) in Scottish rates-avoidance cases, decision-makers may validly infer taxpayers’ subjective avoidance purpose from objective indicators; and (2) concise, structured reasons that tie those indicators to the statutory tests will normally suffice. The decision provides practical guidance to local authorities tasked with policing avoidance under the 2023 Regulations and sets a demanding threshold for commercial landlords seeking to overturn such assessments. Going forward, property owners contemplating ultra-low-rent “occupation” strategies should expect close scrutiny, and challengers should prepare for a steep evidential hill: disproving avoidance purpose, displacing comparator evidence, and demonstrating genuine commercial substance.