The “Dual-Track” Test for Anti-Rates-Avoidance: Dunston Dunfermline Nominees Ltd v Fife Council

1. Introduction

In Dunston Dunfermline Nominees Ltd for Judicial Review of a decision of Fife Council ([2025] CSOH 76) Lord Braid was asked to determine whether Fife Council had lawfully and rationally treated a commercial landlord as liable for non-domestic rates, and whether the Council’s written reasons satisfied public-law standards. The petitioner, owner of five industrial units in Dunfermline, had granted £1 per-annum leases to a faith-based intermediary which claimed 100 % rates relief for religious use. When the Council invoked recent anti-avoidance regulations to “look through” the leases and charge the owner, the owner appealed and—after losing before the Council’s Rating Appeal Sub-Committee—petitioned the Court of Session for judicial review.

The petition raised two headline issues:

How the Non-Domestic Rates (Miscellaneous Anti-Avoidance Measures) (Scotland) Regulations 2023 (“the 2023 Regulations”) interact with the parent statutory provisions in ss 37–40 of the Non-Domestic Rates (Scotland) Act 2020 (“the 2020 Act”).
What level of reasoning local authorities must provide when branding an arrangement “artificial” and shifting liability to the owner.

2. Summary of the Judgment

Lord Braid upheld the Council’s factual finding that the nominal £1 leases were not on a commercial basis (reg 4(6)(d) of the 2023 Regulations), rejecting the petitioner’s allegation of “no evidence”. However, he concluded that the Sub-Committee’s decision was legally defective because it failed to demonstrate that the broader statutory test for artificiality in ss 39–40 of the 2020 Act had also been applied. Satisfaction of reg 4(6) is necessary but not sufficient: the authority must still walk through—and explain—either Condition A (unreasonable course of action) or Condition B (lack of economic/commercial substance) under s 40. The Sub-Committee’s terse letter created “substantial doubt” as to legal error and omitted answers to key arguments, thereby breaching the duty to give adequate reasons.

Accordingly, the Court reduced (quashed) the decision of 4 December 2024 and ordered the Council to re-hear the statutory appeal before a differently constituted Sub-Committee. All expenses were reserved.

3. Analysis

3.1 Precedents Cited

South Bucks DC v Porter (No 2) [2004] 1 WLR 1953 — Leading authority on adequacy of reasons, quoted for the requirement that decisions be “intelligible and adequate”.
Wordie Property Co Ltd v Secretary of State for Scotland 1984 SLT 345 — Early Scots authority on the duty to give reasons and irrationality.
Chief Constable, Lothian & Borders Police v Lothian & Borders Police Board 2005 SLT 315 — Discussed as to the court’s remedial discretion where reasons are inadequate.
English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409 — Cited but distinguished; concerns judicial (not administrative) duty to give reasons.
R (Bukartyk) v Welwyn Hatfield BC [2020] HLR 19 — Applied for the proposition that irrational focus on favourable evidence can amount to error of law.
A v Secretary of State for the Home Department 2024 SLT 1306 — Cited for modern Scottish reiteration of the reasons requirement.
Textbook references: De Smith’s Judicial Review, 9th ed, paras 6.039, 9-136-141, 9.151 (standards of review and remedies).

Each citation served either to define the standard for legality/rationality or to guide the court’s choice of remedy. Notably, no prior Scottish case had ruled on the precise interaction between the 2020 Act and 2023 Regulations; Lord Braid’s decision therefore supplies first-instance precedent.

3.2 Legal Reasoning

3.2.1 The Evidence Question

The petitioner argued that, to satisfy reg 4(6)(d), the Council had to prove open-market rent by contemporaneous comparables; absent such proof, a finding of “significantly below” was irrational. Lord Braid disagreed. He held:

Licence fees later obtained for two of the very units (≈ £11,900 and £5,500 p.a.) were “adminicles of evidence” the Committee was entitled to weigh, even if not contemporaneous.
The nominal rent of £1 itself spoke volumes; only “little additional evidence” was needed to conclude it lay significantly below market level.
The petitioner’s assertion that it would have let for more if higher rent were achievable was circular — it assumed the arrangement was genuine, the very issue in dispute.

Hence the lawfulness/rationality ground failed.

3.2.2 Construction of the 2023 Regulations

The core interpretive dispute concerned whether reg 4 operates as a stand-alone deeming provision (Respondent’s view) or a gateway that still requires separate satisfaction of ss 39–40 of the Act (Petitioner’s view). Lord Braid held:

The Regulations “supplement, not supplant” the Act. Reasons:
- The language of reg 4(2) expressly cross-refers to the Act and requires the authority be “satisfied” that the arrangement is artificial within the meaning of ss 39–40.
- Reg 4 narrows discretion by use of “only” and sets additional hurdles (e.g., post-1 April 2023 timing). That makes sense only if the statutory test continues to apply.
- Section 37(3) forbids delegated legislation from modifying Part 3 of the Act. A construction that the Regulations “replace” the Act would breach that constraint.
Semantic differences (“not on a commercial basis” vs “lacks economic or commercial substance”) show the Regulations are not exhaustive; the statutory test remains wider.
Therefore, satisfaction of reg 4(6)(d) is a necessary but insufficient condition for shifting liability.

3.2.3 Reasons Analysis

Applying South Bucks, the Court scrutinised the Sub-Committee’s letter:

The letter dealt adequately with reg 4(6)(d) but was silent on how the ss 39–40 test was addressed.
The single conclusory sentence (“Therefore ... artificial non-domestic rates avoidance arrangements within the meanings of sections 39 and 40”) read as if artificiality was inferred solely from the rent finding, confirming an error of law or at least “substantial doubt”.
Key arguments (e.g., commercial realism of accepting £1 v. vacancy) went unanswered.

Result: reasons were legally inadequate; decision must be reduced.

3.2.4 Remedy

The Court had to choose between:

Remitting to the same Sub-Committee for fuller reasons (Council’s preference).
Quashing and ordering a fresh hearing before a new committee (Petitioner’s preference).

Lord Braid opted for the latter, citing risk of “reconstruction” of reasons, passage of time, and the lay composition of the original panel.

3.3 Impact of the Judgment

The case establishes what may be dubbed the “Dual-Track Test” for Scottish local authorities:

Apply the Regulatory conditions in reg 4 (e.g., nominal rent, timing, non-commercial basis) and
Separately apply the Statutory test for artificiality (ss 39–40), articulating which of Conditions A or B is satisfied and why.

Consequences include:

Councils must beef up decision letters, specifically addressing s 39 purpose-test and s 40 artificiality conditions.
Property-tax avoidance schemes that rely on nominal rents to faith-based subsidiaries remain vulnerable, but councils must produce robust reasoning.
Future litigation will likely focus on whether Condition A (“unreasonable course of action”) or Condition B (“lacks economic/commercial substance”) is met — the Court provided interpretive hints but left substantive analysis to the reconvened committee.
Regulators drafting delegated instruments must heed s 37(3) — they cannot implicitly amend the parent Act.
The decision amplifies Scottish administrative-law jurisprudence on remedies: where reasons are missing, the default is quashing and rehearing, not “send back for an explanation”.

4. Complex Concepts Simplified

Non-Domestic Rates: Property tax on commercial premises (often called “business rates”).
Rates Relief for Religious Use: 100 % exemption available when premises are “wholly or mainly used for religious worship”. Some landlords exploit this by leasing at peppercorn rent to shell charities.
Anti-Avoidance Arrangement (s 39): Any deal where gaining a rates advantage is a main purpose.
Artificial (s 40): Either (A) unreasonable having regard to policy principles or (B) lacking economic/commercial substance. Indicators include circular transactions, offsetting steps, or advantages disproportionate to risk.
Judicial Review: Court supervision of the legality, rationality, and procedural fairness of administrative actions.
Adminicle of Evidence: A Scots law term meaning a piece or item of evidence.
Quashing (Reduction): The Scottish remedy that nullifies an unlawful administrative decision.

5. Conclusion

Dunston is the first reported Scottish case to wrestle with the newborn 2023 Anti-Avoidance Regulations. Its two lasting contributions are:

Clarification that local authorities must pass a two-step legal test—regulatory and statutory—before shifting rates liability to landlords.
Re-affirmation that even when councils get the merits right, reasons matter; skeletal conclusions invite judicial censure and reversal.

Practitioners advising councils must now draft decisions that expressly map evidence onto: (1) reg 4(6) criteria and (2) s 40 Conditions A/B. Conversely, landlords and advisers will scrutinise whether councils have done both. In the broader administrative-law landscape, the case underscores that the remedy for inadequate reasons is usually a full quashing and rehearing, especially where the original panel is non-judicial and time has passed.

The “Dual-Track” principle announced by Lord Braid will likely guide Scottish rates-avoidance litigation, ensuring that delegated regulations supplement, but never silently overwrite, primary statute.